Minister for Financial Services & Superannuation
14 September 2010 - 1 July 2013
Launch of the Report
Reducing the Risks: Improving Access to Home Contents and Vehicle Insurance for Low-Income Australians
Brotherhood of St Laurence, Fitzroy
9 June 2011
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Good afternoon, and thank you for inviting me to speak with you today.
Sitting on a plane back from Sydney yesterday and thinking about coming to see you all, I was prompted to ask myself – who was Saint Laurence?
At first I thought to myself wasn't he a medieval French Saint? Unconvinced, I pondered some more - thus prompting some quick reading upon my return home.
My initial thought was wrong of course – realising that St Laurence was one of the seven deacons of ancient Rome who were martyred in the 3rd Century.
According to conventional theological history, among the treasures entrusted to Laurence for safe-keeping was the Holy Chalice – the cup from which Jesus and the Apostles drank at the Last Supper.
After the death of Sixtus (and I'm indebted to my encyclopedia here) the prefect of Rome demanded that Laurence turn over the riches of the Church.
The tale goes that Laurence asked for a few days to gather together the wealth. He then immediately set about swiftly distributing as much Church property as possible to the poor and needy, so as to prevent its being seized by the prefect.
On the third day Laurence presented himself to the prefect, and when ordered to give up the Church's treasures, he instead presented the poor, the infirmed, the blind and the crippled, and said that these were the true treasures of the Church. With this inspired act of defiance Laurence's martyrdom came.
But of course in the best of ways and traditions the courage and wisdom of St Laurence lives and breathes in your work today.
I know you are not here for a history lesson but I simply wanted to demonstrate from the outset that there's not just a warmness, but something of a good spirited intellectual passion, that charities like the Brotherhood prompt in many among us – politicians included.
As a Member of Parliament and Minister of the Crown, you can vote on Bills in Canberra; give speeches at the Press Club; issue press releases; do interviews and go to Budget lock-ups.
But it's always best for the very soul of a Member of Parliament (and a Minister) to actually visit organisations out in the community – especially in the not-for-profit sector - and get that ever valuable and visceral weekday grip on what you do and who you help – by coming and seeing you here on your turf.
By coming here to respect your place of work and effort and care and good deeds. Because the reality is this ...
In an ever more uncertain world of storm, tsunami, earthquake, flood and fire. And the economic consequences of some foolish bankers overseas and at home – the best of us can find ourselves without a job for six months or a year.
With mouths to feed and long bus rides to the next interview, feeling the world is an angry, lonely and fearful place. Wondering how soon we'll be sleeping in the rain.
And it's then, if we look, we can find the better angels of the Brotherhood of St Laurence are there – on call with not just food and shelter and useful money, but good advice, with a plan for the next few months that will get us a better place in the heart, and a better place in the world.
You see good but desperate people to safe harbour, sanctuary, better company and a chance to patch up a life gone astray. And heal minds that fumble with despair in those hours when we know it's not our fault but we feel guilty anyway. And at that point of packing it in, the Brotherhood – those better angels – will be there.
So I come today with great respect and gratitude. But also, as you know, to congratulate the Brotherhood of St Laurence — and in particular, the report's author, Dominic Collins — for preparing Reducing the Risks: Improving Access to Home Contents and Vehicle Insurance for Low-Income Australians.
Before I get to Dominic's report I wanted to say a bit about how the Gillard Government is making insurance more accessible.
Importance of insurance
For all its complexity and mixed reputation the undeniable fact is that insurance is an essential factor – and essential instrument in the free market - that keeps modern economies functioning smoothly.
It promotes financial security and personal responsibility.
Insurance also fosters an environment in which the entrepreneurial spirit can flourish. Without insurance, a range of essential activities in commerce, trade and community life would simply grind to a halt.
An issue that you and other consumer groups raise, and the Insurance Council of Australia confirms as a big problem, is the matter of chronic under-insurance in this country. I really don't want to be drawn too far into that serious but broad debate now but what I will say is this...
The approach Governments and insurers take to chronic under-insurance among people and households who are on low incomes and are especially vulnerable – this should always be markedly different to the approach we take to the under-insured across the more general, and more financially secure, Australian community.
As long as the insurance products on offer are fair and reasonable, if people can afford insurance but choose not to take it out – the bottom line is that's their problem.
If people can't afford insurance and therefore don't take it out – that's our problem.
So the work the Brotherhood has done here is welcome – and much appreciated by the Gillard Government.
Reducing the Risks report and insurance reform
Under-insurance and non-insurance encumber much of Australian society.
Recent statistics show that Australia lags behind the OECD average for overall insurance penetration and density.
In other words, we spend less on insurance relative to our wealth and population than many other industrialised nations.
We know that insurance helps people to prevent financial hardship by providing a safety net in the event of a loss.
But unfortunately, as Reducing the Risks points out, the very people who are least able to absorb losses are also the least likely to be insured.
It actually reminds me a bit of what Richmond Football Club CEO Brendan Gale earlier this season described to his club (and indeed publicly) as 'the doom cycle'.
In the footy terms the Gale described doom cycle is essentially thus: not enough incoming revenue means not enough investment in the club's football operations department, which is directly related to on-field underperformance (not enough wins) which then leads to not enough member and sponsor support and therefore not enough money coming in.
I don't any way want to be twee or to flippantly compare the difficulties in people's lives with those of football clubs. But the Richmond doom cycle analogy makes for an interesting analogy I think when we think about what no insurance can mean for our most vulnerable fellow citizens.
It's a heartbreaking fact of life that sometimes it takes a disaster to highlight just how vulnerable Australian families can be.
I've been to the community meetings in places like Ipswich and saw the tears running down cheeks, heard about the helplessness and felt the frustration and anxiety.
Ten and eleven year old children sleeping in tents and just wanting to go home will get any fathers abrupt attention.
To me it's what made the political argy bargy earlier this year about the flood levy so absurd – when fellow citizens are in trouble this is a place that pulls together, not walks by on the other side of the road saying no more taxes.
The Gillard Government is providing $6.6 billion to help communities across Australia rebuild and recover from these tragedies.
Over 700,000 people have already received support through a program called the Australian Government Disaster Recovery Payments. And over 61,000 have received the Disaster Income Recovery Subsidy.
The costs of rebuilding will not be met by the Government alone, and rightly so. It is a testimony to the extraordinary generosity of ordinary Australians that hundreds of millions of dollars have been raised in charitable donations.
The large amount of public funding that was provided to people with no or too little insurance following the recent natural disasters has reinforced just how critical under-insurance is as a problem for the whole community. If we can reduce the levels of non or under-insurance, there will be less reliance on taxpayers to fund support for individuals after natural disasters. Part of the solution is getting appropriate incentives in place for people to take out insurance that is appropriate for them. This is one of the key issues that will be examined by the Natural Disaster Insurance Review that I commissioned.
The general insurance industry will also play its part. Insurance companies have received more than 122,000 claims and paid out more than $1 billion to the victims of the Queensland floods and Cyclone Yasi.
While the contribution of the insurance industry deserves recognition, the recent disasters have also called attention to areas of insurance regulation where there are compelling arguments for reform. Indeed this was evident from the earliest moments when I began to meet with insurance industry executives and the ICA on the 6th of January.
The case for a standard definition of flood has in fact been around since the Newcastle area floods of 2008. And the sometimes absurd complexity of product disclosure statements in insurance policies has surely been obvious for far longer to anyone that has taken the time to read a few in the modern insurance market.
Participants in the study groups convened for the Brotherhood's report felt that product disclosure statements are too complex, and the fine print too daunting. I agree.
One of the key recommendations from the report is that plain English information about policy holders' rights should be more freely available. Product disclosure statements can sometimes reach 35,000 words in length. As I joked on the ABC's 7.30 Report two months ago, the Ten Commandments were 300 words, the Declaration of Independence was around 1,300 words, and yet the average Australian's home and contents insurance policy can run to 35,000 words!
This is why I recently released a discussion paper — entitled Reforming Flood Insurance: Clearing the Water — which proposes both a "key facts statement" that allows consumers to see at a glance the key elements of a home and contents policy, as well as a standard definition of "flood".
The purpose of putting it down on a single page is to allow consumers to see at a glance, the key elements of the policy – perhaps best expressed with ticks and crosses.
Covered for flood damage – tick. Covered for bushfires – tick. Covered for cyclones – tick. Covered for damage to your home from someone you invited – cross. You get the picture.
The consultation period for the Clearing The Waters discussion paper closed recently, and Treasury will be assessing submissions over the coming weeks.
Improving product disclosure and developing a common definition are both proposals which have elicited broad support from the insurance industry and from legal aid and consumer advocacy organisations, including the Brotherhood.
The paper that I launched in April also addressed another issue raised in the Brotherhood of St Laurence report being launched today – namely the ability of people to pay their insurance bills by Centrepay. This is an issue that consumer advocates have been pursuing for a long time.
As I announced in Clearing the Waters, the Australian Government has agreed to include home and contents and motor vehicle insurance premiums amongst the expenses that can be paid using Centrepay.
Separately, my colleague David Bradbury, the Parliamentary Secretary to the Treasurer, has convened an industry roundtable on the issue of "unfair contract terms" in insurance.
While the Government acknowledges the unique nature of insurance contracts, we are determined to strike a compromise which brings insurance contracts within the broader unfair contract terms framework.
Once again, and this goes to all households and not just low income ones, if we are going to blow a horn about chronic under-insurance in Australia then we need to give consumers faith that they won't be fleeced if they are prudential.
In March this year, I announced the establishment of the Natural Disaster Insurance Review.
The Government has instructed the Review Panel to investigate the full extent of, and all the reasons for, non-insurance and under-insurance for disasters in Australia. The Review will also examine the ability of private insurance markets to offer adequate and affordable insurance cover.
Last week the Review Panel released an Issues Paper which proposes, among other things, options to make insurance more widely accessible. The Review Panel will consult with the public in developing its proposals further, and I look forward to receiving the Panel's recommendations at the end of September.
On 2 June, I asked the House Standing Committee on Social Policy and Legal Affairs to inquire into the operation of the insurance industry, with specific reference to extreme weather and disaster events. To gauge community concerns, the Committee will shortly launch an online survey targeting consumers who have made insurance claims for disasters in the last five years.
With people like Shayne Neumann (Member for Blair), Graham Perrett (Member for Moreton), Michelle Rowland (Member for Greenway) and Laura Smyth (Member for La Trobe) on the House Committee you can be assured that the efforts to find answers will be substantial, sensible and compassionate.
And finally, I have already indicated that I will form an Insurance Reform Advisory Group that will provide a forum for progressing insurance reforms. The IRAG will include representatives of consumer groups, the insurance industry and government and will build on the good work already achieved during course of the year in relation to insurance for natural disasters.
Many of the recommendations arising from the Brotherhood of St Laurence's report relate to issues that could be progressed in this forum. I will announce the timing and agenda of the first meeting of the IRAG shortly.
Friends, it's important that we improve the accessibility of financial products for all Australians, particularly the underprivileged.
But we shouldn't limit our aspirations at insurance.
As part of the Stronger Super reforms, the Government is also working to ensure that low-income earners have access to a simple and low-cost default superannuation product called MySuper.
Some of the dilemmas I've encountered in superannuation are similar to problems with insurance. For example, in superannuation, the array of unnecessary and complex features makes comparisons between products difficult and costly. For this reason, MySuper will restrict unnecessary or excessive fees. In fact, over the long term, MySuper is expected to save super fund members an estimated $1.7 billion a year in fees.
Life insurance in Australia is now closely linked to superannuation. The MySuper model will improve access to life and total and permanent disablement insurance by stipulating that they must be offered to all members on an opt-out basis.
This initiative provides an important safety net for consumers who may otherwise fail to consider their insurance needs. I am determined to see that superannuation becomes a cost-effective vehicle for low-income earners to access these types of insurance.
Financial literacy and legal aid
And as recommended in Reducing the Risks, the Government is also working to ensure that more resources are devoted to educating consumers about the dangers of being uninsured.
ASIC's recently released National Financial Literacy Strategy reflects research that shows about half of all Australians lack the necessary skills to make informed decisions about financial products.
Earlier this year, the Government launched, with ASIC, the new MoneySmart consumer finance website. MoneySmart was funded by the Gillard Government and developed by ASIC to help Australians boost their understanding of money matters through access to independent, high-quality, personalised financial guidance.
Even in its infancy the website has been popular with the Australian public, with more than 250,000 individual users logging on.
We are also providing $10 million to ASIC to roll out the Helping Our Kids Understand Finances program. This program will deliver face-to-face training to 6,000 teachers, covering the key elements of financial literacy within the national curriculum.
The Government will provide $60.6 million over four years to continue until 2014-15 micro-finance, financial literacy and money management projects funded under the Nation Building and Jobs Plan in the 2009-10 Budget.
We will continue to support not-for-profit organisations including the Brotherhood of St Laurence and Good Shepherd to provide financial counselling and micro-finance products such as StepUp Loans, No Interest Loans Scheme and Saver Plus products in areas of high needs.
And earlier this year, the Australian Government donated an additional $200,000 to legal services providers in Queensland, to help flood victims access legal advice.
We also welcomed the launch of a self-help flood insurance guide from Legal Aid Queensland, which provides representation to financially disadvantaged Queenslanders.
The extra funding was in addition to the $62.2 million the Government had already provided for legal assistance services in Queensland over 2010-11.
Cost of living
The initiatives I've just outlined to improve the provision of insurance, superannuation, financial literacy and legal advice are all very important.
Disadvantaged Australians will also have an interest in this Government's resolve to lend a hand with cost of living pressures.
From July this year, we will deliver up to an additional $300 a year of the Low Income Tax Offset directly into pay packets, rather than at the end of the year.
We are also committed to increasing Family Tax Benefit A for older teenagers by up to $161 per fortnight, and to allowing payment advances of up to $1,000 for this Tax Benefit to meet unexpected expenses.
And finally, $460 million has been set aside to extend the Education Tax Refund to cover school uniforms.
These measures complement the income tax cuts this Government delivered in each of our first three Budgets. Cuts which have reduced the tax bill for the average income earner by about $1,000 a year.
Before concluding today, I'd just like to convey a few final thoughts about the value of insurance.
It's fair to say that insurance regulation is currently in a state of flux.
The Government is determined to make insurance policies simpler and easier to understand through our proposals for a common definition of "flood" and a "key facts statement".
And as I mentioned earlier, I have initiated broader insurance reviews through the Natural Disaster Insurance Review and an imminent House of Representatives inquiry.
Looking forward, I note that the Productivity Commission has recently released its draft report into disability care and support.
This is an issue that has been of great personal and professional interest to me, both as Assistant Treasurer, and in my previous position as Parliamentary Secretary for Disabilities and Children's Services. The Government asked the Commission to study disability care and support because we know that the time is right for a major rethink in this area. The final report will be presented to the Government in July this year.
I'm in regular contact with peak industry bodies like the Insurance Council of Australia and the Financial Services Council, and I will certainly be discussing the Brotherhood's report with them.
I am also confident that there will be opportunities to examine many of this report's recommendations at meetings of the forthcoming Insurance Reform Advisory Group, or IRAG. IRAG will be a consultative forum for exchanging views between the government, consumers and industry, which I intend to personally chair.
A few weeks ago in an address to the National Press Club, I praised another example of the Brotherhood's excellent work, the savings program you jointly developed with the ANZ Bank. This report will be another invaluable contribution to the many insurance reforms this Government has already set in motion.
Once again, thank you for inviting me to launch Reducing the Risks.
I'm sure it will make a significant contribution to the current insurance debate, as the Brotherhood always does to public policy development in our great country.