Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | Hansard source

It is a real pleasure to rise on this important amendment by the member for Kingsford Smith, which goes to the issue of the exemption provided to add-on travel insurance. We know from behavioural economics that customers tend to make systematic mistakes when it comes to insurance. People tend to underestimate very large risks, such as the risk of death or catastrophic injury, and tend to overestimate the dangers of small risks, such as damaging your smart phone or getting your baggage lost when you're on holidays. Unfortunately, those who sell insurance are all too aware of these behavioural biases and so the value of mobile phone loss insurance tends to be very small. Conversely, if you're a seller of mobile phone insurance, you make out like a bandit. The profit margins on small-products insurance are extraordinarily high. These are products which are just not an actuarial good deal for customers. Behaviourally, that's because it's a kind salient loss; we have all lost a mobile phone, damaged a mobile phone or know someone who has, so we can easily envisage it happening to ourselves. But it doesn't follow that therefore it's a good deal to take out insurance for it.

The same goes for certain kinds of travel insurance where the profit margins can be very big, reflecting the fact that the payouts are much smaller than the premiums. Sure, some customers do end up making a claim which exceeds the premium they paid, but these are policies which often have a combination of exempt categories. For example, if you lose cash—often one of the first targets of thieves when people are travelling—it can be difficult to reclaim it. There can be limits on the value of items which are stolen and there can be significant deductibles, and so customers find themselves making a claim but then discovering that the insurer will only cover half of that claim.

We're very sceptical about the value of this insurance and about the government's willingness to provide it with an exemption to the usual rules. We're not the only ones who are sceptical about this. As the member for Kingsford Smith has highlighted, he and the member for Whitlam, the shadow Assistant Treasurer, have engaged in extensive consultations with consumer groups. Those consumer groups have raised the concern that we need to be very careful before providing a carte blanche exemption from appropriate regulations around the sale of this form of insurance.

Labor has a strong record of standing up for consumers. It was Labor, under Lionel Murphy, that put in place the competition and consumer framework that is fundamental to the Australian economy today. It was Labor, in the early 1990s, that spearheaded the competition and consumer reforms that led to the last big surge in productivity. If we want to get productivity going again in this country, we have to turbocharge competition. Only Labor can do that, because only Labor is the party of competition. Those opposite too often find themselves in thrall to vested interests—standing on the side of producers rather than consumers, being unwilling to recognise what the latest behavioural science has told us about the risks to consumers. They believe that scorched-earth, free market economics will do fine. They're acolytes of Ayn Rand, and their motto is caveat emptor, or let the buyer beware—leave them out in the consumer marketplace with nothing to defend themselves.

Mr Fletcher interjecting—

The minister at the table is saying it's a straw man. Minister, if it's a straw man, then stand on the side of consumers when it comes to travel insurance. Stand up for consumers on the issue of travel insurance. Your constituents, Minister, would be delighted if you stood in favour of them rather than padding the profits of travel insurers who are gouging consumers.

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