Thanks very much Mark (Milliner, ICA President) for that kind welcome and introduction. I'd also like to acknowledge and thank ICA CEO, Mr Rob Whelan.
It's a pleasure to join you for this 2013 regulatory update seminar. I'm here today representing my colleague, the Minister for Financial Services and Superannuation Bill Shorten, who can't be with us today as he's attending the funeral of former Federal Parliamentary Speaker Joan Childs in Melbourne, and sends his sincere apologies.
I will keep my remarks brief — you have a very full day of presentations and discussions ahead of you, which I know you're all anxious to start.
This event is a very significant one, given there has been a lot on the agenda for insurance and broader financial services regulation over the last few years, both in Australia and internationally.
The event also presents another opportunity for those of us in government to join with you in the industry to discuss the regulatory landscape.
Such opportunities help serve a government / industry relationship that has, as I will emphasise today, been constructive, and led to productive outcomes for the industry and its customers.
Much of the recent international work on insurance and the financial sector generally has been focused on prudential regulation.
This area is less visible to the public, but is of course of key importance in ensuring that the integrity of our financial sector is preserved.
Since the global financial crisis, the Gillard Government has implemented a series of changes in the prudential regulation space, in close consultation with APRA.
That process continues with the release in September last year of the consultation paper Strengthening APRA's Crisis Management Powers.
Much of the proposals in that paper were inspired by the work of international agencies such as the Financial Stability Board, the International Association of Insurance Supervisors and the OECD.
I understand that one of the sessions today will focus on international initiatives regarding insurance regulation, and whether there's a case for enhanced regulation in Australia.
The global financial crisis has rightly focused our attention on how to get the correct balance in place for consumers of financial services to have the benefit of safety and stability, and for the industry to thrive.
You can be assured that the Gillard Government recognises the importance of the insurance industry's input in this process.
That's why we have consulted with you closely in this process and the Government is currently giving careful consideration to the industry's submissions on the Strengthening APRA's Powers paper before finalising any proposals for legislative amendment.
This Government very much appreciates the close working relationship that it has enjoyed with the insurance industry.
This relationship helps us to ensure that the burden of regulation doesn't become too heavy, and sometimes helps identify where we can lighten the load. One example of this is the amendments to the Insurance Contracts Act to enable insurers to provide statutory notices and documents to consumers electronically.
A key area of concern over the last few years has, of course, been around flood and natural disaster insurance.
In this area much has been and is being achieved by government and industry in unison.
Such developments as the requirement for a standard definition of "flood" and the key facts sheet have been made possible through close cooperation between government and industry.
These initiatives will help consumers to understand the type of cover they have by providing easier access to key information, and will lead to more informed decisions about insurance purchases.
The Government has committed $12 million to the National Flood Risk Information Portal to assist the community, planners, and insurers to access important flood information about their local area.
Whether the Flood Risk Portal becomes a success will also depend, to some degree, on coordination with the insurance industry. To get the full benefit from it, we need to know that the work of the portal ultimately adds to the industry's store of knowledge on flood risk.
These changes have gone some way toward addressing the issues we've seen in relation to flood insurance.
In addition, the Government acknowledges the role played by industry in increasing the number of policies that include flood insurance from around three per cent in 2006 to an estimated 81 per cent today.
This all adds up to significant progress on flood. But there are still people out in the communities, especially those in areas at higher risk, who are finding that the price of insurance cover for flood is beyond their means.
The Government has been searching for sustainable ways to address this problem.
This is the background which gave rise to last week's announcement by the Prime Minister and Bill Shorten of the National Insurance Affordability Initiative, which will invest $50 million a year in targeted flood and other natural disaster mitigation measures, as well as establish a National Insurance Affordability Council (NIAC).
The Council will manage the national coordination of flood risk management, make recommendations to the Government on flood and other natural disaster mitigation projects and undertake other functions directed at reducing natural disaster insurance premiums.
This was another example of government / industry coordination that will lead to a real and positive difference for home and business owners seeking to insure their properties for flood or for other natural disaster events.
I note that this initiative has been very well received and on behalf of the Government, wish to thank the industry for their significant input over the past few months.
Even Senator Barnaby Joyce was gracious enough to issue a media release, thanking the Prime Minister and acknowledging that the Government was "getting something right". This is hard won praise. It's not often we get such accolades from Senator Joyce.
As I think most of you would agree, this initiative goes to the heart of the problem — reducing the risk of damage from flood targets the underlying cause of higher insurance premiums in risky areas and is an investment in the future.
The Government has identified three priority areas of work for the National Insurance Affordability Council to focus on in the first instance — upgrading of flood defences in Roma and Ipswich in my home state of Queensland, with investments of $7 million and $10 million respectively, and providing a $50 million contribution to any NSW Government proposal for improvements to the Warragamba Dam. I was particularly grateful for the $10 million investment in Ipswich as this covers parts of my electorate, which was severely affected by the 2011 floods.
These projects have the potential to have a real impact in lowering risk and reducing premiums. Evidence gathered from those of you in the industry shows, for example, that average insurance premiums in Roma are currently around $3,000, compared with nearby Charleville where premiums average around $1,200.
The difference, of course, is that Charleville has an effective flood levee. Roma does not.
We've also seen tangible results in places like Goondiwindi, where premiums fell by an average of 33 per cent, following flood mitigation works.
And initial private indications from the industry suggest that premiums for at risk properties in the Hawkesbury — Nepean valley could fall by up to 40 per cent, depending on the level of flood mitigation the NSW Government proposes to the NIAC.
Some have said that more mitigation work needs doing than we've announced in this initiative.
Of course that's right.
We live in the sixth largest country on earth and we're subject to a range of natural disasters.
Responsibility for mitigating these disasters crosses all levels of government.
The road to maximising our defences against natural disasters is a long one.
But every journey must begin with the first step, and the initiative announced by the Prime Minister and Minister Shorten last week sees the federal government leading the way and inviting state and local governments to join it in getting serious about protecting our regions from the effects of all too frequent floods, bushfires and storms.
The Government will continue to work closely with industry in the roll out of the Insurance Affordability Initiative to ensure that the work done has a real impact in terms of reducing risk and lowering premiums.
The National Insurance Affordability Council will play a role in assessing the ongoing link between mitigation works and insurance premiums.
But the Council will also have a broader role than this. It will, as recommended by the Natural Disaster Insurance Review, have a part in coordinating flood risk management.
This may involve, for example, assessing whether other Government initiatives, such as the National Flood Risk Information Portal, are enhancing the store of flood risk information and improving the quality of flood risk assessments in a way that's relevant to the insurance industry.
Flood will not be the only natural disaster within the Council's remit. It will also be following developments in strata title insurance markets in northern Australia.
One of the first significant milestones in this respect will be the result of research being undertaken by James Cook University and the Insurance Council on the vulnerability of strata title buildings in tropical Australia.
When the results of this work are known, the Council will consider whether there is a role for government in sponsoring mitigation work to alleviate insurance premiums in those regions.
While the Affordability Initiative focuses on disaster insurance, we need to ensure that insurance remains accessible and affordable in all its various guises.
People on low incomes, older Australians, and those with a disability, should not be denied access to the risk sharing mechanism that insurance provides.
Achieving equity in these areas is not a matter for government alone. As we have in so many other areas, we are inviting industry to join us in finding solutions to these issues.
Forums such as the Insurance Reform Advisory Group provide opportunities for the kind of dialogue between government, industry and stakeholders that can constructively address issues with access to insurance for older Australians, those with a history of mental illness, and those on lower incomes.
As we have shown in relation to other issues, when we engage with each other and apply our collective creativity and drive to these problems, we can find solutions that will improve outcomes for people in these categories.
Collective innovation in addressing these matters is the key to seeing that all Australians enjoy equal access to the benefits of the financial system in Australia.
Another change the industry will see this year is the application of the unfair contracts regime to general insurance contracts.
The new provisions will take account of the unique features of insurance contracts.
For example, the definition of what is unfair will take into account terms which reflect the underwriting risk accepted by the insurer are reasonably necessary to protect an insurer's legitimate interest.
The Government will provide an appropriate transition period for industry with the new provisions applying to new and renewed contracts entered into after commencement.
Again, the Government recognises the contribution of the insurance industry in the consultations on these reforms and encourages its continued participation in consultations on the public release of the draft legislation which is expected soon.
The Government acknowledges that, parallel to its own process of review of insurance regulation over the last few years, the insurance industry has been reviewing its own regulatory framework.
First, by making changes to the Code of Practice in 2012 in response to the series of catastrophic events of 2010-11.
Then by bringing forward a scheduled review of the Code from 2013 to 2012 in response to government and consumer concerns.
I note that the independent reviewer, Mr Ian Enright, will provide you with an update on the progress of his review this afternoon in a session of this conference.
I and my colleagues in the Government look forward to hearing of the review's progress, and to the final report, which I understand will be finalised in May.
In closing, on behalf of my colleague Bill Shorten, myself and the Government, I look forward to continuing our close working relationship with the insurance industry in 2013.
Thank you again for the opportunity to come and speak with you and I hope you enjoy today's event.