The Minister for Financial Services and Regulation
21 October 1998 - 26 November 2001
The Hon John Howard MP
Joint Press Conference with Minister Joe Hockey
Parliament House, Canberra
21 May 2001
SUBJECTS: Royal Commission into HIH Insurance collapse
Joe Hockey and I have two announcements to make. I'll make one and then he'll make one. I'm announcing that the Government has decided to establish a Royal Commission into matters relating to the HIH collapse. The detailed terms of reference of the Royal Commission will be announced in due course. The Commission will co-operate with the Australian Securities and Investment Commission in relation to that Commission's investigation, which will continue.
I make it plain at this stage that the decision of the Government to hold a Royal Commission into all matters relating to HIH, in no way indicates a lack of confidence in the ability or the competence of the Securities Commission to carry out it's investigation. And that investigation will continue and the work of the Royal Commission will be in co-operation with the activities of the Securities Commission. And I also mention that one of the reasons why I in particular and other members of the Government were persuaded of the desirability of having a Royal Commission was advice we received from the Solicitor-General to the effect that there was a technical conflict of interest between Mr Knott's position as Chairman of the Securities Commission and his membership at the APRA board.
Some of you may remember that I was asked this question last week when I was on the Central Coast and I indicated that I was seeking advice on the matter and that that was one of the reasons why I had held open - as had Mr Hockey - the possibility of having a broader inquiry. Because the reality is that the powers of the investigation which are available to the Securities Commission are effectively as extensive as those of a Royal Commission. But any question raised about a perception of any conflict of interest was one of those matters which we believe was decisive in determining the establishment of a Royal Commission.
The Commission will, that is the Royal Commission, will also inquire into the adequacy of the prudential framework governing the insurance industry in Australia at both a Commonwealth and a State level. It will examine the role of the Australian Prudential Regulatory Authority in relation to the collapse of HIH as well as the role of State officials or bodies whose regulatory or other activities impact on the insurance industry. So we want the Royal Commission to look at State activity as well as Commonwealth activity. The Federal Government will seek the necessary co-operation of State Governments to clothe the Commission with whatever power is required to enable an examination of State officials and bodies. In these circumstances I would imagine that the co-operation of the State Governments will be forthcoming. I will, and the Attorney-General will have, and the Minister will have discussions about the person or persons to constitute the Commission and when that has been worked through and the terms of reference have been established I will make a further statement.
This is obviously a major corporate collapse. It has never been the wish of the Government in any way to prevent a full examination of what went wrong. I've said all along that the book should be thrown at any wrong doers and that will be the case. I've never doubted the capacity of the Securities Commission to do that job and it will go on doing its investigative work in co-operation with the work of the Commission. And I hope that what I've announced today will put to rest the absurd political libels that have been thrown around by Mr Beazley and by the State Premiers to the effect that there is some cover-up involved by the Federal Government. The Federal Government and the Minister have nothing to hide. And can I take the opportunity of putting on record my total confidence with the way in which Mr Hockey has handled his responsibilities. I have looked carefully through the chronology of events and they demonstrate very clearly to me that Mr Hockey was very pro-active in seeking information form APRA. And he acted at all stages as a very diligent and a very competent Minister.
Our major concern is with the people who have suffered from the HIH collapse and on that point I will hand over to Mr Hockey who will have some things to say about the details of the Government's assistance package. Then we will both be very happy to answer questions.
MINISTER HOCKEY: Thankyou Prime Minister. The Government is today announcing a package to assist those people in hardship as a result of the collapse of HIH.
This package is worth more than $500 million and will be funded from the Federal Government budget. It will be funded through the HIH claims support company which we announced recently which is a non-profit company being set up by the industry with the support of QBE, NRMA, Alliance and Royal & Sun Alliance.
The details of the package are as follows:
- The Government will pay 100 cents in the dollar for people with salary continuance policies and disability policies who are Australian citizens or permanent residents.
- We'll pay 100 cents in the dollar for personal injury claims where the insured is an Australian citizen or permanent resident or small business.
- We'll pay 100 cents in the dollar for claims for a total loss on a primary place of residence where the insured is an Australian citizen or permanent resident.
- We'll pay 100 cents in the dollar for claims where the insured is an Australian not-for -profit organisation.
- The Government will also pay 90 cents in the dollar support for other claims where the insured is subject to an income test where the family taxable income is less than $77,234 and it increases by $3,139 for each additional child. A policyholder qualifies regardless of the size of their claim. Secondly, where family taxable income is more than $77,234 including the $3,139 for each child, the policyholder qualifies for assistance if the claim is more than 10% of the family taxable income.
- We'll also cover 90 cents in the dollar where claims have been lodged for Australian small businesses that have 50 employees or less.
There are some key issues to note in relation to this package. Firstly, the payment of support will only be available where a claim has been made before the 11th June 2001 or a claim related to an event that occurred before 11th June 2001. So any Australian who has not taken out an new policy and is currently insured with HIH should seek a new policy as quickly as possible because events that occur after midnight 10 June 2001 will not be covered by this package.
In relation to the Local Government claims, the Federal Government will offer to contribute to Local Government claims on a one for one cost sharing basis with the respective states.
Furthermore in relation to State compulsory schemes, the States will remain responsible for the financial position of their compulsory insurance schemes. The Federal Government will offer the use of the company, which I announced last week, to the States to be able to pay their financial assistance through. We are going to put in place an appeals mechanism, which will be set up to consider cases which involve anomalies in the application of the income test and policy holder categories.
The following claims are excluded from this package:
- Claims where the insured is not an Australian citizen or an permanent resident.
- Claims for re-insurance contracts or in the nature of a re-insurance contract issued by HIH.
- We will not be paying insurance mandated by State and Territory Governments, including compulsory third party motor vehicle insurance, workers' compensation, builders' warranty and professional indemnity for legal practitioners to the extent that that's compulsory in some states.
- We will not be paying for any business that is not an Australian business or does not meet the definition of a small business.
- We won't be paying for claims where the insured was a director or an officer or an associate of a director or officer of any company within HIH three years before its failure.
- And we will not be paying claims where the insured was an individual or an associate of an individual who was in a position to influence or advise the directors or officers of any companies within HIH three years before it's failure.
This is a very comprehensive package to assist those people most in need. It focuses on hardship.
The collapse of HIH is an extremely complex scenario. This is the most complex corporate collapse in Australia. The ramifications are far reaching and so we have been endeavouring to do what no other government has done in relation to insurance companies and that is to build support mechanisms for those enduring hardship as a result of the collapse.
PRIME MINISTER: Righto. Any questions?
JOURNALIST: Mr Howard, when will be know the result of the Royal Commission?
PRIME MINISTER: I beg your pardon?
JOURNALIST: When will we know the result of Royal Commission?
PRIME MINISTER: I don't know.
PRIME MINISTER: Well it hasn't been established yet. I've only just announced it. I have no idea when the result of it will be known. We will set to work and find a person or persons of great ability to constitute the commission. We'll work out the terms of reference and then it will set to work. I think it will take a while but I have no idea when it will finish its work and I wouldn't seek at this stage to even speculate about that.
JOURNALIST: A few days ago Prime Minister you were concerned that a Royal Commission with interfere with those other inquiries.
PRIME MINISTER: Well we're going to do it in a way where that won't happen Geoff. They're going to work together. And I mean my position frankly was I thought the Securities Commission inquiry in relation to the wrongdoing inside HIH was quite adequate because the Securities Commission has got effectively the same powers as a Royal Commission. Although it deals with investigations and it deals my its very nature in camera. But I understand the public interest in this matter and when I got the advice from the Solicitor General about the technical conflict of interest, and let me make it clear there's no suggestion that Mr Knott, and it's made clear in the Solicitor General's advice he's done anything wrong, it's just a technical conflict, potential technical conflict of interest. And I thought, and a lot of my colleagues took the same view that that is really the final clincher in terms of having an omnibus or overarching Royal Commission that looks into all of these other matters in particular and also works in partnership with the Securities Commission in relation to the investigation. Look they will undoubtably, that is the Royal Commission and the Securities Commission, will undoubtedly work out some modalities between themselves in relation to activities concerning investigation of HIH. But the real value of what we have done is to recover the whole field. We disabuse any perception however wrongly based that there was anything the government didn't want examined. We're an open book on this issue. The Minister has worked diligently and we want to find out what went wrong. We want to find out who did the wrong. And as far as possible we want those people to deliver restitution to the wronged. And we have established a mechanism that is going to deliver that outcome.
JOURNALIST: Mr Howard will you release that advice about the technical conflict of interest?
PRIME MINISTER: Well I'll take advice on that.
JOURNALIST: And secondly would either of you like to comment on the NSW government's announcement today about [inaudible]?
PRIME MINISTER: Through a levy? Well we're not in favour of that. We don't think policyholders should be slugged. I mean this is not a levy on the insurance companies. This is a levy on the policyholders.
JOURNALIST: Didn't NSW (inaudible) insurance companies?
PRIME MINISTER: They're getting it from the insurance companies but in the end the insurance companies will put their premiums up. That's the point. I'm just jumping a step ahead. And if I were a policy holder who had deliberately made a decision not to insure with HIH because I thought HIH was sailing close to the wind, I'd be pretty cranky if my premium were put up as a result of HIH falling over. And that's one of the reasons why we're not going to have a levy.
PRIME MINISTER: Louise. One Sydney Morning Herald at time.
JOURNALIST: Mr Howard, I thought you said that the Royal Commission would look into the role of State officials?
PRIME MINISTER: Yes.
JOURNALIST: Can you elaborate on that?
PRIME MINISTER: I can elaborate by saying that everybody should sort of have, they're going to have a look at APRA, they're going to have a look at whether anything at a state level failed.
HOCKEY: I can add to that Prime Minister.
PRIME MINISTER: Let Mr Hockey add to that.
HOCKEY: There is, certainly there is evidence that a number of state authorities knew of the position of HIH as much as APRA did. They had similar powers, in fact in some cases more powers, particularly with the Motor Accidents Authority in New South Wales. There is also a problem that insurance companies have different regulation in different states and different taxation levels in different states. For example a policy in regional Victoria is the highest in cost in Australia because of Victorian State taxes. So these sorts of factors really do have a big impact on the way insurance companies manage their risk. And it's time that the states also started to put themselves under the same scrutiny and we're prepared to put ourselves under.
PRIME MINISTER: Margo, you were next.
HOCKEY: Well some of them are, Motor Accidents Authority in New South Wales. Workcover also covers that. There's equivalent to the Motor Accidents Authority in Queensland and a range of others. We're happy to give you some of the names.
JOURNALIST: Mr Howard can I get an idea, what's the timetable for actually starting the hearings? In what city would you expect the hearings to be held? I presume Melbourne but it might be another one. And also how much funding...
PRIME MINISTER: Why do you presume Melbourne?
JOURNALIST: Because that's where ASIC's based isn't it?
PRIME MINISTER: Well ASIC doesn't conduct... that doesn't mean they have to stay at the same hotel.
JOURNALIST: When do you expect the Royal Commission to begin, where do you expect it to be held and what and what level of funding have you set aside to fund the Royal Commission?
PRIME MINISTER: Well there'll be all the money they need, that they can justify. We've only taken the decision today so I can't tell you what that is. But look we're going to properly resource it. The timetable is a matter for the commission to work out when it knows who it is. We've only just taken the decision and I've got to talk to a few people and Mr Hockey and the Attorney General have got to talk to a few people. But the Royal Commission will get started on its work as soon as possible. Its first act may not be to have a public hearing, it may not have many public hearings. That will be a matter for it. The point I want to make is that the Securities Commission investigation will go on and the two will work together, clearly the Royal Commissioner or commissioners will need to sit down with the Securities Commission commissioner who is conducting this investigation and work out some modalities in relation to their co-operation. But we're not going to try and skimp on anything. I have no doubt that the State Government's will be more than willing to cloth the Commission with whatever power is needed in order to examine the state authorities because they are so committed to everybody getting to the bottom of everything that happened. So therefore I'm certain that Mr Carr and Mr Bracks and Mr Beattie will write to me tomorrow saying 'yes John you can have all the power you need for this Commission to have a look at us'.
JOURNALIST: The Royal Commission I think you said was an over...
PRIME MINISTER: I think I said overarching yes but a general superintendent's role.
JOURNALIST: Well Labor's been making the point that one element of that is of course whether the behaviour of the regulatory authorities or the government in this was influenced at all by donations to the Liberal Party. I mean ...
PRIME MINISTER: Look anybody can ask me or Joe Hockey or anybody else in the Government any question they like about donations. I mean can we just get one thing clear, I understand HIH did give donations to the Liberal Party, it's in the papers and I understand it also gave a donation to the Labor Party. And I understand that as well but look can I just put on the record, I do not lead a government that is influenced in the decisions it takes by either the frequency, the size or whether or not a donation is given. And I am happy and I know Mr Hockey is happy to answer any questions. But I don't walk away from the fact that companies give the Liberal Party money, any more than the Labor Party should walk away from the fact that the trade unions give it large amounts of money and they exercise of course a constituency influence and a systemic influence on the Labor Party that the business community does not exercise on us. I mean 60% of the delegates at the New South Wales' Liberal Party Convention are not appointed by the companies of New South Wales or the companies of Australia. Whereas 60% of the delegates at state Labor conferences are. There is quite an important difference. But look we are an open book. We take donations yes, we take them in accordance with the law, we answer questions and as far as I am concerned I am perfectly happy to answer anybody, anywhere, anytime, any question in relation to contributions made to the Liberal Party. I don't have all the details, they're handled of course by the party organisation but you have a broad idea from time to time from what you read in the papers as to who might contribute to your party, but we need money to run a campaign and we're not shy about that. But look that's a complete non-event that issue. I mean they can dig as much as they like, they won't find anything on me or Joe or anybody on that. Mr Walker?
JOURNALIST: Can you tell us what ...
PRIME MINISTER: Can I have the gentlemen from the Fin Review? It won't make any difference to the acerbic character of the question.
JOURNALIST: Prime Minister, you or and or Mr Hockey, I wonder if you can explain why you didn't involve the states before now in discussion about how to deal with this systemic problem apparent in the whole collapse of HIH?
PRIME MINISTER: You mean before now in relation to the HIH collapse? Or generally?
JOURNALIST: No, before now in relation to the HIH?
PRIME MINISTER: Oh they're very simple reasons ...sorry.
JOURNALIST: But I just want to add one point, I mean they have called for several weeks now for a roundtable discussion about how to deal with this thing which you've suggested which you've rejected 'til this point.
PRIME MINISTER: Well I'll have a go at it and Joe can clean it up, can add to it if he wants to ...but he's sort of got the detail of it. But one of the reasons why I haven't up until now Tony is that they've just been playing a stupid political game. I mean when I see the Queensland Premier getting up and waving his arm around and saying I should sack the minister, I know they're not playing, they're not taking this seriously, they're just playing a political game. The first correspondence I got from Mr Carr on this issue, as I recollected, was an attempt really to shift the New South Wales responsibility in relation to statutory obligations under motor vehicles third party insurance and the like onto the federal government, that's not our responsibility. But look in due course we'll no doubt talk about this thing at the COAG meeting which is being held on the 8th of June and there'll be some other things to discuss I know. But they've been playing a very political game on this over the past week or so and therefore any serious engagement has been difficult. But you should also note that Mr Hockey made a very constructive offer of the company we've set up and within a couple of hours, Mr Egan had accepted that so ..
MINISTER HOCKEY: In writing.
PRIME MINISTER: In writing, so you shouldn't suggest that there hasn't sort of been back channel co-operation while the sound and fury of confected political outrage has monopolised the television screens.
JOURNALIST: Not just backchat in the street?
MINISTER HOCKEY: Well I can add to that that in fact I've spoken to Michael Egan on two occasions now, made offers to him, he said he'd come back to me seeking a time for an appointment and I didn't hear back from him. So we are, the problems with HIH in relation to compulsory schemes are restricted essentially to Queensland, New South Wales and Victoria with some effect in South Australia and limited affect in Western Australia and the Northern Territory and Tasmania. So the effect is different according to the types of schemes they have. New South Wales has to answer some very serious questions about the building services corporation, about their preparedness to stand behind builders' warranty and various other schemes. But at the end of the day we're pleased to work with people, we have been focusing on the people in hardship. There have been some terrible scenarios out there. I met a young man in Brisbane the other morning who took out salary continuance. He was getting $30,000 a year, he suffered a bone degenerative disease and his payments stopped and he was literally begging for support and they're the sort of people we're targeting instead of sitting around having a pow-wow, not getting anything done and arguing about who's to blame. That isn't going to help anyone who is suffering real hardship.
PRIME MINISTER: Mr Henderson?
JOURNALIST: Mr Howard do you have an estimate of how much the taxpayer might be able to get back from the wrongdoers? When do you think we might be able to get back half of the $500 million or more?
PRIME MINISTER: It's too early, look I can't make any estimate, any intelligent estimate of that. The liquidator might at some stage in the future be able to do something on that. But $500 million is a lot of money to be in the hands of one individual or a couple.
MINISTER HOCKEY: Just to add to that, sorry, just to add to that PM. Well it's worth ...
PRIME MINISTER: No, you go right ahead.
MINISTER HOCKEY: The company that we've set up has been specifically set up so that the Commonwealth will become potentially the biggest creditor to HIH. That gives us another mechanism as a potential creditor to pursue those people who may have been responsible for the collapse. As the provisional liquidator will indicate when he announces the state of the company, there is substantial provisioning for reinsurance which he is at this stage unable to quantify. But we are very determined to pursue those people who have been responsible for the collapse. We are very determined to get every cent we can from the failed entity.
JOURNALIST: Just on the [inaudible] which will the [inaudible]?
PRIME MINISTER: It'll be spread. There'll be a reference and the aggregate amount will be in the contingency reserve but there'll be provision of at least $500 million spread over, as it should be, over a period of years.
JOURNALIST: Did there have to be some last minute nipping and tucking...?
PRIME MINISTER: Always last minute things. Always last minute things, you know ... a Treasurer and Prime Minister's work is never finished.
JOURNALIST: Mr Hockey, when do you expect the government will stop paying funds out of this fund?
MINISTER HOCKEY: Well it will take some time. Claims will be processed as they would normally be processed and that's a very important point. That's why we brought in the expertise of the other insurance companies. The government doesn't have that expertise, for example when there was a collapse of a bank in Victoria, the government at the time backed it into a commonwealth bank. We don't have any commonwealth insurance company so we rely heavily on the industry to process the claims. Now those claims are, will be worked out as the companies can. Some events may not occur for a few years' time, there may be some mechanism that can be used to commute those claims. We're exploring all of that.
PRIME MINISTER: Two more.
PRIME MINISTER: Philip Coorey.
JOURNALIST: Considering you don't know the full extent of it yet, are you confident that $500 million will be enough?
PRIME MINISTER: No well what we're saying is at least. And that's all you can. I mean we are not trying to do any fiddle on that. There'll obviously be quite a lot, but it's very early at this stage. Malcolm Farr who has not asked a question.
JOURNALIST: Royal Commissions have a habit of bolting. Is there potential for this to become not just into HIH but for the entire insurance industry and any sort of peripheral... [inaudible]?
PRIME MINISTER: Well it's meant to examine the adequacy of the regulatory framework for the insurance industry but we're not frightened of that. I mean we're meant to be interested in proper inquiry and the purpose of this, I mean if you set up a Royal Commission for other than a proper public policy reason, then ... there's good public policy reason for this Royal Commission as there have been in relation to other Royal Commissions. But I'm not concerned about this. I mean as I say we don't have anything to hide. We're perfectly happy for the commission to have a look at APRA and have a look at the state bodies and as I say I would imagine the state governments would fall over themselves to co-operate and to clothe it with whatever power is needed in order to get to the bottom of what happened.
JOURNALIST: What about the superannuation industry Prime Minister? Will it spread to that or is it just not going to be included?
PRIME MINISTER: Well superannuation sort of is not immediately under the hammer at the moment. I have noted what the Governor of the Reserve Bank has had to say about that and I'm thinking about that carefully at the present time, but I don't know that I would want to take it any further than that. Okay.
JOURNALIST: What about a inquiry into the building industry? A Royal Commission into ...
PRIME MINISTER: Well I don't think that would be in the same terms of reference. I mean the poor bloke would be busy for years, it would drive him to distraction.
JOURNALIST: Did you decide for or against a Royal Commission in the building industry at all?
PRIME MINISTER: Now that's what I call a trick question from a cagey journalist whose you know, eye is always on the ball.
JOURNALIST: [inaudible] decide for or against...?
PRIME MINISTER: Thank you very much. No Phil, we've got nothing more. The answer is that this press conference is about HIH and insurance matters, I have nothing to say on that matter at present. Thank you.