Tony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | Link to this | Hansard source

It is my pleasure to speak on the Insurance Contracts Amendment Bill 2013 on behalf the shadow Treasurer and member for North Sydney. The coalition is supporting this bill, which seeks to implement recommendations made by the coalition government's 2004 review into the Insurance Contracts Act 1984. The bill had its origins in recommendations made to the Howard government review of 2003-04 of the Insurance Contracts Act. The review panel's main conclusion was that the act was generally working satisfactorily to the benefit of insurers and the insured; however, the review panel found that some changes would be beneficial given the passage of time since the 1984 act, and given developments in the insurance market over time.

The changes foreshadowed by the review were put in an exposure draft bill by the Howard government in February 2007. With the change of government at the end of that year, the matter lay dormant until 2010, when the Labor government introduced the Insurance Contracts Amendment Bill of that year. The 2010 bill had the support of the coalition; however, it lapsed with the calling of the 2010 election, and it has now been reintroduced with minor changes. As I said at the outset, the coalition will again be supporting this bill; however, as the reforms in their current form may not have been examined in detail to determine whether they may add to the cost of living of consumers, reduce specific forms of cover or introduce greater complexity in the form and content of future policies, the bill should be referred to committee. The coalition has sought to do this in the Senate.

The bill has seven schedules and I will briefly go through each of them. The first schedule amends the 1984 act to ensure that a failure to comply with the duty of good faith within an insurance contract is a breach of the 1984 act. The duty of good faith is extended to third-party beneficiaries, but the duty only commences after the contract is entered into.

The bill also gives ASIC the power to commence or continue representative action on behalf of the insured where the party has suffered damage or where there has been a breach of the act. ASIC will be able to access the various remedies under the Corporations Act in relation to Australian financial service licence holders.

Bundled insurance contracts, bundled contracts that include insurance cover for compulsory workers compensation purposes and liability to employees at common law arising from employment related personal injury will be made exempt from the Insurance Contracts Act 1984. However, bundled contracts are to be unbundled where a contract of insurance includes elements of cover that are exempt from the 1984 act as well as elements of cover that are not exempt. Once unbundled, only the elements of cover that are exempt from the 1984 act will be treated as such, whereas before even the non-exempt elements of the bundle were treated as exempt by being part of such a bundle.

The second schedule deals with electronic communications and it amends the Electronic Transactions Act 1999 and the Insurance Contracts Act 1984 to allow electronic communication of documents and statutory notices. Electronic communication is, of course, increasingly used for these kinds of transactions, and barriers to its use are a significant cost and red-tape impost to both business and consumers.

Schedule 3 deals with the powers of ASIC and amends the Insurance Contracts Act to give ASIC a statutory right to intervene in any proceeding that relates to matters arising under the 1984 act and under part 3 of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003.

The fourth schedule deals with disclosure and misrepresentation, and it makes a number of changes to the duty-of-disclosure obligations placed on insurers. The test in section 21 of the 1984 act for whether an insurer has breached a duty is clarified by including a non-exclusive factor to which the court may have regard when determining whether a reasonable person in the circumstances could be expected to know a matter was relevant to the decision of the insurer, the factor involved and the nature and extent of the insurance cover under the contract.

Amendments to section 21A will prevent insurers from asking catch-all questions relating to the risk of the contract as a means of avoiding their duty. Insurers will be required to gain specific agreement on each individual request in relation to any risk in the proposed insurance contract. This will apply at both inception and renewal of the contract. However, on renewal, insurers may choose to seek updates to answers previously provided by the insured person rather than asking specific questions again.

Compliance by the insured with the duty of disclosure on renewal does not mean that a failure to comply with the duty on the original inception or previous renewal is negated. Insurers will be required to notify the insured before the contract of issuance is entered into that the duty-of-disclosure obligations continue until the time the policy is actually entered into. A form of words may be prescribed by regulation for use by insurers to inform persons of their duty of disclosure, and any person subject to the contract is under a duty not to misrepresent.

The fifth schedule deals with remedies for life insurance contracts, and it rectifies remedies in respect of bundled contracts which have been judged by the industry and the government as being inappropriate. These remedies apply to life insurance contracts involving a surrender value and death cover. Bundled contracts will now be able to be unbundled to apply the relevant remedies. The current law forces remedies to be applied to the contract as a whole, which restricts the options for both parties. Insurers will be able to change the expiry date of a life insurance contract where that date has been incorrectly stated by the insured. Also, the statutory framework in the ICA for cancellation of general insurance contracts will be extended to life insurance contracts.

Schedule 6 deals with third parties and inserts new definitions for third-party beneficiaries to ensure that individuals who have rights under a contract of issuance but who are not insured have access to particular rights and obligations currently held by the insured.

Third parties with damages claims against an insured or third-party beneficiary who has died or cannot be found may recover directly against the insurer. ASIC will have powers to bring representative actions on behalf of third-party beneficiaries. Remedies for misrepresentation and nondisclosure are available in relation to life insurance contracts that are offered as part of a group scheme that is unrelated to superannuation and remedies are available with respect to any representation or nondisclosure that occurs between when the insured became a member of the superannuation or other group scheme and when the life insurance takes effect.

The last schedule deals with the allocation of moneys recovered when an insurer exercises a right of subrogation in relation to an insurance claim. On payment of a loss the insurer is subrogated to the rights and remedies of the insured in respect of the subject matter insured. In particular, the insurer may bring an action in the insured's name against any third party who has caused loss. Those seven schedules are outlined in great detail in the minister's second reading speech and in the explanatory memorandum.

As I have said, the coalition is supporting the bill and has supported the bill in the last parliament prior to it lapsing before the election. We do, however, note that its reintroduction, while welcome, is long overdue. Industry stakeholders have been waiting for this to be reintroduced for some time. They are happy with its provisions and the level of input they previously had into the process. They have been consulted at numerous stages now over a number of years, beginning in the final years of the Howard government. This bill is the result of the Howard government's reform agenda on insurance contract regulation. Whilst Labor has dragged its heels in the last couple of years and allowed it to drift, the bill is now before us and the coalition is supporting it.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

I speak in support of Insurance Contracts Amendment Bill 2013. Whilst the member for Casey has accurately gone through the schedules, he says that this particular piece of legislation arises out of the review back in 2004 by the panel consisting of Mr Alan Cameron AM and Ms Nancy Milne. It is a bit broader than that. In fact, or response in relation to insurance contracts also arises out of the natural disaster insurance review report which was commissioned to examine insurance for flood and other natural disasters following the 2010 and 2011 summer floods and also was in part a response to the House of Representatives Standing Committee on Social Policy and Legal Affairs report In the Wake of Disasters—volume 1: The Operation of the Insurance Industry during Disaster Events, which was presented in parliament in February 2012. So it is broader than that.

I will not go through it schedule by schedule but I will deal with the issue of insurance and how it affects natural disaster. We live in a country of fires, floods and cyclones and other extreme weather events. Those recent natural disasters have been catastrophic not just nationally, not just interstate but in my electorate of Blair, which contains most of Ipswich and all the Somerset region, containing places like the Wivenhoe Dam, the Somerset Dam, Lockyer Creek, Bremer River and the Brisbane River. We have seen catastrophe and people having to interact with the insurance industry, from farmers to businessmen to householders from Mount Stanley and Mount Kilcoy to Karalee and Ebbw Vale and other places in and around Ipswich as well, from stormwater in Redbank Plains to floods in Churchill to terrible disasters from flooding in places like Basin Pocket, North Booval, East Ipswich and Bundamba.

It is not just my electorate that has been affected but in 2009 Victoria experienced the tragic Black Saturday bushfires and 2009 and 2011 fires affected Western Australia. The people of North Queensland, Madam Acting Deputy Speaker Littlemore, in our home state have suffered terribly with cyclones Larry, Yasi and Oswald, and we have seen flooding in Western Australia, New South Wales and regional Victoria. And of course there have been 17 major floods since 1840 in the Ipswich and Brisbane region of South-East Queensland. I am sure that many people would not have known places like Grantham, the Lockyer Valley and Ferndale in the Somerset region but have heard of them now.

In 2011 we saw about 186,000 insurance claims as a result of the floods and cyclone in Queensland, the floods in Victoria and the storms and fires in Western Australia. That is an enormous number of insurance claims. Australia has a very large and profitable insurance industry. The gross premiums are about $35 billion per annum and they have total assets of nearly $114 billion. The industry employs about 60,000 people. It pays out on average about $95 million per working day in claims. The big players are companies like Suncorp, IAG, QBE insurance and Allianz Australia. It is a pretty volatile market, of course, but there are high levels of competition.

The experience of my community during the floods was that they were brutalised by the floods and brutalised by the claims process they endured dealing with their insurance. Contracts of insurance are really a transfer of economic risk from an insured to an insurer. People do not quite understand that. A premium is paid in relation to it. We have very much adopted the English law in relation to insurance. The main legislation came into Australia in 1986 with the Insurance Contracts Act, which we amended when we came to office. Under that Insurance Contracts Act, people must act with utmost good faith towards one another. Sadly, the insurance industry has had a real get-out-of-jail-free card in relation to those types of breaches. There are of course precontractual negotiations. Some of them can just be a phone call. Others can be correspondence through email. It is a very serious thing to mislead people, particularly in relation to material facts. As a litigation lawyer, I dealt with those kinds of things in private practice.

There are many changes in this bill. One in the first schedule is an amendment to the Insurance Contracts Act so that failure to comply with the duty of utmost good faith is a breach of the Insurance Contracts Act. That is something that the House of Representatives standing committee recommended that we do. We found during our inquiry that insurance companies not only were unaccountable in that regard but had their own insurance code of practice which they felt they could use to get out of jail free when a natural disaster took place. In other words, they had obligations which their clients felt they had contracted with the insurance company in terms of notification, processing of claims and getting back information. But then the insurance companies simply junked the code of practice via a provision that they had in 4.3 of that code of practice.

I admit that, subsequent to that, with pressure from a lot of people from both sides of the House, particularly Minister Shorten, the member for Maribyrnong, they did see the need for an amendment in that regard. I commend the Insurance Council of Australia for their review. They have engaged Ian Enright, an independent reviewer, to look at their code of practice. I met with him recently and discussed the issues that have affected my community. I raised the issue that is before us tonight, about the breach of utmost good faith, and the fact that we need this type of legislation as the insurance industry, by virtue of legislative omission, found itself in a very privileged position.

That standing committee of the House of Representatives recommended a number of changes in relation to the Insurance Contracts Act, and I am pleased that the government took them up. Those included a single definition of 'flood' for home building, home contents, small business, strata title and corporate insurance, and the provision of a key facts sheet, something that was intelligible, in simple and clear English, and did not require a doctorate of law to understand.

I have said before that during the 2011 flood—we were not flooded in Ipswich at my house, although it happened when I was a child—my wife actually asked me, 'Do we have flood insurance?' I looked at my own personal insurance contract and it mentioned 'flood' a number of times. Having had 20 years as a litigation lawyer with a law degree, I can read a contract pretty well. It took me a number of goes to read that I actually personally was not covered for flood insurance. When you are in a time of vulnerability, when your home, farm or business has been flooded, and you are having to deal with an insurance company and you do not understand all these things, the power imbalance is enormous. What we are trying to do with the legislation before us is to get a fairer insurance regime in this country to equalise the power imbalance. That is what we are trying to do. And we are trying to get ASIC involved. I am pleased that we are legislating to protect consumers from unfair terms in insurance contracts. I think those protections should have been for a long time enshrined in our laws to cover these types of situations. Consumer protection legislation is vital. I am pleased it is being extended to general insurance contracts, which in the past have been excluded.

Australians should not really have to fight and fight and fight in this regard. I have seen on numerous occasions the Financial Ombudsman actually give decisions negative to constituents in Blair but then criticise the insurance company for the claims process handling that they undertook in relation to those particular people. I can think of a flower farmer and his wife who have just recently been involved in one of those cases. I can think of another case where a businessman and his wife in Ipswich were in a similar situation—denied a claim but then the insurance company was criticised by the Financial Ombudsman for the way in which the process was conducted by the insurance company. That is simply unacceptable. People should not be brutalised by a flood and then brutalised by the claims process handling by the insurance company—someone they have contracted with and engaged with in good faith. People need to know that when they pay their premiums they are going to get a fair go, and the insurance company should not hide behind unfair terms to leave people high and dry when it comes to claims.

There are many reforms in this particular piece of legislation. But I think that it needs to be seen in the context of what we are doing to fix flood insurance in this country. I was pleased recently to see the Prime Minister visit my electorate, and to see steps taken to reduce the cost of insurance across Queensland and elsewhere. It is particularly important because the insurance industry, as I outlined earlier, is a large employer, a large business and a large group of companies that deal with Australians every day. Most Australians do not get charged with criminal offences. Most Australians do not have car accidents. Most Australians do not get injured at work. But most Australians at some point in their life will have an insurance contract. In relation to the reform, the whole package needs to be seen: the single definition of flood, the product disclosure statement and the key facts statement. The amendments before this particular chamber tonight and the work we are doing in terms of flood mitigation and insurance affordability are absolutely critical. We have proposed establishing a national insurance affordability council, and we are working with the insurance industry. I am pleased to see press releases from the Insurance Council of Australia, which is not always favourable to us, welcoming the announcement that this government has undertaken $100 million in funding over two years for flood mitigation projects. The purpose of that is to deal with the insurance industry and reduce the cost of insurance. Reducing the cost of insurance, reducing the burden of the claims process handling is so critical.

In my electorate of Blair, I am pleased to announce $10 million to the Ipswich City Council for flood mitigation projects. That was a terrible experience for people from Rosewood to Redbank Plains, experiencing flood again and again. We saw floods in Ipswich not just in 1893 and in 1974 but in 2011 and in 2013. The floods have really terrorised the people. I was pleased to see that the flood work will be undertaken in places like Thagoona, $1.8 million; Rosewood, $2.8 million; and Redbank Plains, $3.9 million. Nine of the top 10 projects of the Ipswich City Council to reduce the impact of floods on the people of Ipswich will be proceeded with. This is what the Insurance Council of Australia have been calling for. This is what I have been calling for—in the Queensland Times, on River 94.9 radio—again and again, because, by legislation and by action, we can actually make an impact. The Insurance Council have talked about levies in country towns in Queensland and the prospect of levies reducing insurance premiums. Insurance premiums have gone up massively in my community. One of those projects I mentioned involves a levy. I have been to Thagoona many times. This is particularly important for my electorate. I think this is the sort of reform that we need to undertake.

I am pleased to speak on this bill. I am pleased about these legislative changes. I am pleased about the recent announcement. I am also pleased that the Queensland government is going to match the funding that we have put aside for an $80 million mitigation fund to better the situation in Queensland and elsewhere. I support this legislation that is before the chamber.

Richard Marles (Corio, Australian Labor Party, Parliamentary Secretary for Pacific Island Affairs) Share this | Link to this | Hansard source

I thank the members for Casey and Blair for the contributions that they have made to the debate on the Insurance Contracts Amendment Bill 2013. The measures in the bill modernise and streamline the operation of the Insurance Contracts Act 1984. The government has undertaken extensive consultation on these measures to ensure that the balance between the interests of insurers, the insured and the wider public is maintained. The measures will help ensure a better-functioning, more efficient insurance market that will ultimately benefit the entire Australian community.

Schedule 1 to the bill makes changes to the scope and application of the act. The changes provide that a failure to comply with the duty of utmost good faith is a breach of the act; that contracts of insurance that are entered into or proposed to be entered into for the purpose of workers compensation law continue to be exempt under the act; and that contracts of insurance that include elements of cover that are exempted from the act as well as cover that falls under the act are treated as exempt from the act only in respect of the exempt elements.

Schedule 2 to the bill makes technical changes to provisions in the act regarding the giving of notices, documents and information. These changes will apply to permit insurers to use electronic communication for the purposes of providing notices or documents that are required to be given in writing.

Schedule 3 to the bill provides ASIC with an additional power to intervene in matters arising under the act. The new power is similar to the existing power ASIC has to intervene in proceedings begun by other persons about matters arising under section 1330 of the Corporations Act. It also allows ASIC to be represented in the proceedings by a staff member, a delegate, a solicitor or counsel.

Schedule 4 to the bill changes the way the act deals with particular types of disclosure and misrepresentations, to clarify how the duty of disclosure test is applied. It amends the law to make the duty of disclosure apply on renewal of an eligible contract of insurance and remove the option for insurers to ask catch-all questions in relation to eligible contracts of insurance. It amends the law regarding circumstances in which an insurer must provide an insured with a reminder as to when their duty of disclosure obligations apply. In respect of life insurance contracts, it amends the law so insurers must give a potential life insured who is not the insured under the relevant contract of insurance notice of their duty of disclosure.

Schedule 5 to the bill changes the way the act deals with the remedies for life insurers in cases of misrepresentation and nondisclosure by insureds prior to their entering into life insurance contracts. The changes provide insurers with additional flexibility when seeking remedies for misrepresentation and nondisclosure, by allowing the unbundling of life insurance contracts so that remedies can be applied to each separate type of cover provided within a bundled life insurance contract; by providing a new remedy for misrepresentation and nondisclosure which will apply to all types of life insurance cover, with the exception of death and surrender value cover; and by expanding the range of remedies available to a life insurer where a misrepresentation of an insured involves a misstatement of the date of birth of the insured under the contract.

Schedule 6 to the bill makes technical changes to the act so that individuals who have rights under a contract of insurance—that is, third-party beneficiaries—but who are not the insured have access to particular rights and obligations currently held by those insured.

Schedule 7 to the bill amends the act to provide improved rules for the division of any proceeds that are received from a recovery action when those proceeds are recovered from a third party by an insurer under a right of subrogation.

In conclusion, these measures are another significant step made by the Gillard government to improve Australia's insurance market. While the measures in the bill, by and large, are technical in nature, as a package they will operate to streamline and clarify requirements while ensuring appropriate consumer protections are maintained.

Question agreed to.

Bill read a second time.

Ordered that this bill be reported to the House without amendment.