Key points |
Reducing the regulatory burden: Corporate and Financial Services Regulation Review Consultation Paper. |
FSR refinements: Consultation on issues that were raised in last year’s refinements process, including issues raised by the ICA. |
4 May 2006
Thank you Michael for that introduction.
To you Michael, Board Members of the Insurance Council of Australia; Ladies and Gentlemen. I’m delighted to be here this evening and to have the opportunity to talk with you.
Firstly, I’d like to take a moment to acknowledge on the record the work of Alan Mason the previous Executive Director of the Insurance Council of Australia. Alan has had a notable and successful career in the insurance industry, and I wish him well in his retirement.
I would also like to congratulate Kerrie Kelly on her appointment as ICA’s new Executive Director and wish her all the best in this important role.
I have found the Insurance Council to be a very active participant in the consultation process. At all times, our collective goal has been to develop solutions that produce the most efficient outcomes for all.
One example is ICA’s involvement in the process I embarked on last year to refine Australia’s financial services regulations.
These refinements, which became law in December, last year, were welcomed by the financial services sector and the insurance industry in particular.
Once again, I would like to thank ICA for its valuable input into the development and implementation of these refinements and for the role it plays in the sector more generally.
As one of the three Parliamentarians in the Treasury Ministry, I am particularly responsible for corporate and financial services regulation.
I firmly believe in the importance of this industry to the welfare of the Australian people.
After all, we should never lose sight of the fact that the financial services sector — and the insurance industry in particular — can determine the welfare of Australian families, not just for now, but for generations to come.
We live in a magnificent, yet sometimes unforgiving country.
From raging bushfires to cyclones and floods, we are a nation that has matured to take the good with the bad. Somehow, we always come through it.
Those of us who have lived through these natural disasters — I’m thinking particularly of people in Far North Queensland and the Northern Territory at the moment — would never underestimate the importance of insurance and the role that insurance companies play.
But there are still many people who have not insured their property — from cars, to houses to some businesses.
To my mind, the financial services sector in general is essentially a sophisticated production line that relies on input from a range of sources and stakeholders.
Tonight, I would like to share with you some of my thoughts on the role that we can play as a government in this production line process.
First, we need to create a regulatory framework that is simpler, clearer and more efficient for both consumers and businesses.
This new regulatory framework should reduce compliance costs, which in turn should lead to products and services becoming more affordable and accessible.
And secondly, we need to ensure that people are educated about their financial affairs — both their needs and their obligations. It is only natural to suggest that the more informed people are, the better decisions they will make.
I think the outcome that we need from these two goals is one of greater consumer confidence in the financial services sector.
In working to achieve these objectives, I would like to reflect on recent initiatives, and outline where we are going in the near future.
As you know, last year’s refinements improved the operation of financial services regulation by helping to reduce compliance costs for industry, and improving the information that’s provided to consumers.
For example, the refinements enabled insurers to tailor product disclosure documents for general insurance to provide consumers with simpler and more relevant information.
As I have mentioned, insurance cover is one of the most important purchases we can make. It also plays an important role in our economy.
The extent of that role was revealed in the report, commissioned by the ICA, which the Centre for International Economics released last year on the general insurance sector.
From that report I was impressed to learn that, in 2003-04, the general insurance sector contributed almost $15 billion to Australian GDP, in gross value added terms.
And perhaps more importantly, I discovered that Australian households, governments and businesses have some $48 billion worth of current and future claims against the reserves of general insurance companies.
It seems to me that helping Australians to manage risk through insurance makes a vital contribution to an efficient and robust economy.
An important factor underpinning this economic efficiency is a regulatory system that both supports business activity and most importantly, protects people.
A positive regulatory system minimises compliance costs, without undermining the important consumer protections the law provides.
An effective regulatory system also encourages confident participation in financial markets. In turn, this enhances the efficiency of the insurance sector and the Australian economy as a whole.
Reducing the Regulatory Burden
Since I have been in this position, I have received many representations from consumers and industry about the complexity and volume of corporate and financial services regulation.
It’s clear that excessive regulation — or worse, poorly designed regulation — detracts from productivity and increases costs for both consumers and business.
As a former businessman, I’m very well aware of the complexities involved in complying with an extensive array of corporate regulation.
This experience has strengthened my resolve and determination to reduce the regulatory burden whilst in no way, moving away from the necessary protection of consumers.
My experience has also sharpened my ambition to develop a regulatory system that’s less complex, more efficient and which actually produces optimal outcomes.
Corporate and Financial Services Regulation Review Consultation Paper
As a first step toward the process of implementing what I like to call “A Simpler Regulatory System”, on 7 April, I released the Corporate and Financial Services Regulation Review Consultation Paper.
This consultation paper was released alongside the Report of the Taskforce on Reducing the Regulatory Burden on Business, chaired by Gary Banks.
Work on the consultation paper will take place in tandem with the changes that flow out of the Banks Report.
The release of the paper has been welcomed by the financial services industry and I am delighted to read that ICA, and indeed the insurance industry as a whole, has welcomed the Government’s recent efforts to simplify regulation.
An important component in achieving A Simpler Regulatory System is this comprehensive package of ideas for improvement, not only to financial services regulation, but also to other aspects of corporate governance.
The consultation paper outlines a total of 56 issues.
In developing the paper, I have put particular emphasis on achieving continued consumer protection, minimising compliance costs, ensuring access to capital and enhancing the accountability of regulators.
Predominantly, I am seeking comments on additional issues for refining financial services, many of which were raised during last year’s initial refinements process.
ICA and its members have provided valuable insights and comments. Specifically, you have raised several issues of importance to the insurance industry.
This is why I am considering the issue of dollar disclosure for general insurance products.
It’s recognised that in some situations, the exact dollar amounts of the costs and benefits of a general insurance product can’t be determined until an insurer has assessed the risk of a consumer and ascertained their required level of cover.
As you would be aware, this poses difficulties when providing a standard Product Disclosure Statement, as these are generally pre-prepared and therefore need to include information on a range of scenarios that may apply to a consumer.
This can result in Product Disclosure Statements providing lengthy and potentially confusing information.
This is why the consultation paper seeks input on the possibility of applying more flexibility to accommodate the different circumstances in providing dollar disclosure for general insurance products.
Other disclosure issues being considered include whether oral disclosure in relation to Financial Services Guides and Statements of Advice could be reduced in time-critical situations, such as telephone sales.
And also, whether an insurer should still provide clients with a Financial Services Guide and Statement of Advice when the client states that, in fact, they do not want to purchase the product.
The paper seeks comments on the retail/wholesale definition and how it applies to bundled insurance products and where we can draw the line between general and personal advice.
As well, I am looking at the liability provisions for licensees who share representatives.
In particular, the paper seeks comments on the scope to refine the cross-endorsement requirements, taking closer account of the different classes of insurance products that an authorised representative may provide on behalf of their authorising licensees.
I am pleased to see that the ICA recognises and agrees that any changes arising from this consultative process should also aim to reduce the cost of compliance.
In turn, as I mentioned earlier, I believe this can help to reduce the costs of insurance while maintaining important protections that the legislation provides.
The subject of lawmaking doesn’t usually lend itself to levity.
But one of the more amusing things anyone has said about it comes from Prince Otto von Bismarck, whose engineering of the unification of Germany earned him the nickname “the Iron Chancellor”.
He said:
“Laws are like sausages. It’s better not to see them being made.”
While that approach may have worked in 19th Century Germany, my style is quite the opposite!
I’m a firm believer in open, transparent consultative law-making.
Put simply, I believe in this because it’s the best way of ensuring that any changes we make do what they are intended to do, and work successfully in practice. In other words, I want to ensure that the law actually delivers on the intention of the Parliament.
I am firmly committed to ongoing consultation. As we saw from the refinements process last year, this approach has proven to be worthwhile.
I want you to know that I will convene roundtable discussions around the country, and will attend as many of those as possible to hear first-hand from consumers and practitioners.
This is why I would encourage all interested stakeholders to engage in a thorough analysis of the consultation paper.
Feedback from the business community at every step of the way is invaluable and necessary if all of us, government, consumers and business are to make the most of this opportunity.
I welcome all ideas about the issues raised in the paper and whether changes to regulation are required to address them.
If the consensus is that changes are required, then I hope that stakeholders will not only endorse the ideas but actually provide some recommendations and proposals for taking these improvements forward.
Importantly, I would ask stakeholders to also provide us with information on how such proposals could actually benefit end-users and financial service providers in a tangible way.
Before we commit to any further changes to regulation, we need to ensure that such changes will improve the efficiency of the insurance sector as whole — and not advantage one stakeholder at the expense of another.
The way ahead
Looking ahead, I intend to use the information collected during the consultative process to determine what enhancements we can make in the short-term and what can be achieved in the medium term.
I would like to make one final point on the further refinements project.
The outcome of moving toward A Simpler Regulatory System will inevitably lead to more changes.
I appreciate that there have been many changes to financial services regulation over recent years, but I’m sure you will agree with me that positive change is good change.
Conclusion
In conclusion, while the consultative approach to lawmaking I have described this evening would no doubt have horrified the Iron Chancellor, experience tells us it is, in reality, the most effective method in a modern, democratic society like Australia.
Adopting this approach to making the reforms and refinements I have outlined will further strengthen our already robust corporate and financial services sector.
In addition, I believe firmly that it will enable more Australians to plan for their future with greater certainty.
I know that these goals align very much with that of the ICA and the insurance industry because at the end of the day everyone here tonight I’m sure, wants the same thing.
We want Australians to have confidence, peace-of-mind and security.
Winston Churchill once said that:
We make a living by what we get, but we make a life by what we give.
I look forward to working together with you all in ensuring we give, each of us in our own small way, Australians greater security, confidence and peace-of-mind into the future.
Thank you.