21 May 2001

Criteria for HIH Hardship Relief

The Minister for Financial Services & Regulation, Joe Hockey, today announced the criteria for Commonwealth Government relief for policyholders suffering financial hardship as a result of the HIH collapse.

"This package will cost more than $500 million and be funded by the Federal Government Budget. It will help those policyholders who are suffering financial hardship as a result of the collapse of HIH," the Minister said.

"Now we have to process these claims and ensure policyholders get the money they need as quickly as possible.

The Government will shortly put in place a public awareness campaign and advertise a hotline for HIH policyholders to apply for assistance.

Assistance will come from the Commonwealth Government Budget via a not-for-profit company, HIH Claims Support Pty Ltd (HCS). HCS will provide claims management and payments services on a cost-only basis supplied by 4 Australian insurers - QBE, NRMA, Allianz and Royal & Sun Alliance.

Details

The Government will pay 100 cents in the dollar for:

  • people with salary continuance policies who are Australian citizens or permanent residents;
  • personal injury claims where the insured is an Australian citizen or permanent resident or small business;
  • claims for a total loss on a primary place of residence where the insured is an Australian citizen or permanent resident; and
  • claims where the insured is an Australian not-for-profit organisation.

The Government will pay 90 cents in the dollar support for:
  • other claims where the insured is subject to an income test as follows:
    • Where family taxable income is less than $77,234 (increased by $3,139 for each additional child), a policyholder qualifies regardless of the size of the claim.
    • Where family taxable income is more than $77,234 (increased by $3,139 for each additional child), a policyholder qualifies for assistance if the claim is more than 10 per cent of family taxable income.
  • claims where the insured is an Australian small business that has 50 employees or less.

Relevant dates

The payment of support would only be available where a claim had been made before 11 June 2001 or a claim related to an event that occurred before to 11 June 2001.

Anyone who has not taken out a 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.

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.

State compulsory insurance schemes

The States will remain responsible for the financial position of their compulsory insurance schemes.

HCS use by the States

The Federal Government will offer the use of the HCS to the States when they pay financial assistance.

Appeals mechanism

An appeal mechanism will be set up to consider cases that involve anomalies in the application of the income test and policyholder categories.

Excluded Claims

The following categories are excluded from the scheme

  • claims where the insured is not an Australian citizen or permanent resident;
  • claims for reinsurance contracts or in the nature of a reinsurance contract issued by HIH;
  • insurance mandated by State and Territory Governments including compulsory third party motor vehicle insurance (CTP), workers’ compensation, builders’ warranty and professional indemnity for legal practitioners (to the extent that it is compulsory);
  • any business that is not an Australian business or does not meet the definition of a small business;
  • claims where the insured was a director or officer or an associate of a director or officer (as defined under the Corporations Law) of any company within HIH 3 years before its failure; and
  • 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 3 years before its failure.

Last week, the Government announced a package of 4 measures in response to the HIH collapse, including
(i) Accelerated legislative reform;
(ii) Efforts towards a uniform national insurance regime,;
(iii) Additional funding of $5 million for ASIC; and
(iv) Financial assistance for some claimants suffering financial hardship.

21 May 2001
Media contact: Matthew Abbott, Minister's office, 02 6277 7230, 0413 076 213

Examples *

Examples of third party beneficiaries

Mrs Hall slipped and fell in her local butcher shop. As a result of the fall, Mrs Hall broke her arm and required surgery. Mrs Hall claimed for damages against the butcher, who in turn made a claim under his HIH public liability policy. The scheme would pay out the butcher as it is a small business, and Mrs Hall would in turn receive payment from the butcher.

Examples of salary continuance and personal injury beneficiaries

Mr Jones worked as a senior executive for a large private sector organisation. As part of his remuneration package, his employer provided salary continuance insurance that was taken out with HIH. This cover provided Mr Jones with 75 per cent of his salary until he reached 65 in the event he was incapacitated for work. In 1998, Mr Jones was diagnosed with a debilitating disease that forced him to leave the workforce permanently at the age of 56. Mr Jones was receiving payments from HIH up until it entered provisional liquidation. The proposed scheme would pay out Mr Jones’ claim in full.

Examples of individual beneficiaries

Mr and Ms Bishop, a retired couple who are keen sailors, lost their boat during a fire at the marina in 1999. The boat was covered by pleasure watercraft insurance policy taken out with a company in the HIH Group. The claim of $30,000 was still not paid out at the time of HIH’s provisional liquidation. Mr and Mrs Bishop, who have a combined annual income of $45,000, would be eligible to have their claim met by the scheme at the rate of 90 cents in the dollar (that is, $27,000 would be paid).

Example of a small business

Machine Group Ltd, a small business employing 8 people, hired out equipment in 1998 that led to a workplace injury. The business was sued along with three other parties for negligence. The case has recently been settled, with the company facing a liability of $150,000. The company was insured with HIH at the time of the claim. As the company has less than 50 employees it would meet the suggested criteria of the scheme and be eligible for assistance.

Example of a claim against local government

A NSW country town’s local council faces a $1.1 million compensation payout to a truck driver who was injured in an accident. A court held that the council was liable because the driver had been blinded from dust caused by council roadworks. The town council has cash assets of $1.5 million and raises only $700,000 a year from its 3,000 ratepayers. Without assistance, the council will be unable to undertake maintenance work on essential services. The Commonwealth would offer to cover half of the amount of the claim on a cost-sharing basis with the State.

Examples of beneficiaries who would not be covered

In late 1999, Ms Beckham, a pensioner shopping for Christmas presents, slipped over at a large shopping mall complex, breaking her hip. The owner of the complex is a large corporation that does not meet the small business definition and had public liability insurance with HIH. The case was settled in Court early this year and Ms Beckham was awarded $85,000. In this case, the corporation will be fully liable for Ms Beckham’s claim and the corporation would not receive any assistance under the scheme.

* All examples are fictional