21 March 2019

Address to the Financial Services Council Life Insurance Conference


Thank you for that introduction, it's great to be here.

With the Royal Commission into Misconduct of the Banking, Superannuation and Financial Service Industry handing down its final report, and the Morrison Government providing our response, it's a pivotal year for your industry and open discussions at events like this are crucial.

As you've heard the Prime Minister and the Treasurer say, restoring trust in our financial system is the main focus for the Government in responding to the Royal Commission.1

I'd like to provide you with the Government's perspective on the Royal Commission findings, the actions we're taking and what it means for the life insurance industry.

Morrison Government

The Coalition has made real progress strengthening the economy.

Australian continues to grow faster than all of the G7 countries except the US.

We're on track to record our 28th consecutive year of annual economic growth later this year.

The unemployment rate is at its lowest level in seven years.

Average real growth in government spending is at its lowest level in 50 years and the proportion of working age Australians on welfare is at its lowest level in 30 years.

These statistics aren't coincidental, nor are they by chance. They are a result of five years of hard-work by this Government cleaning up the mess we inherited.

I'm pleased to say the light is quite visible as we head towards the end of the tunnel.

This year for the first time in 12 years we will deliver a budget surplus.

Over 1.2 million new jobs have been created since we came to office, at an average of about 240,000 per year.

Over 100,000 new jobs for young Australians between the age of 15 and 24 were created last financial year - the highest rate in the country's history.

It's because of the strength of the nation's economy that we can deliver essential services Australians rely on.

The Government is making a record investment in public hospitals, with funding increasing by more than 50 per cent over the 5 years to 2018-19 and is expected to further increase to $24.4 billion in 2021-22.

Since 2013, the Australian Government has listed over 2,000 medicines, an average of around 31 PBS listings per month - or one each day - worth $10.6 billion.

The National Disability Insurance Scheme for the first time has been fully funded, and we're doing it without increasing the Medicare Levy.

The Government is investing an extra $36.7 billion in schools over 2018 to 2029. On average, per student funding will grow by 61 per cent over this period.

We're ensuring Australia has tomorrow's infrastructure today through our $75 billion, ten-year rolling Infrastructure Investment Program.

10 million Australians will benefit from personal tax relief. The Government has also provided tax relief for over 3.3 small and medium businesses - who employ seven million Australians.

The financial sector

We recognise that the Financial Services Council represents a significant part of Australia's largest industry sector, including the almost $2.7 trillion of consumers' savings via their superannuation.

We also appreciate that the life insurance sector is invaluable in providing financial protection to policyholders in times of need and financial distress.

Given this importance, I'd like to take the opportunity to acknowledge the FSC's efforts in addressing issues identified by the Royal Commission.

I understand the FSC held working groups with representatives from Board Committees to respond to matters raised in the hearings and to anticipate the impacts of the report on the sector.

I know the FSC has also held a series of meetings to discuss the Government's legislative response to the recommendations and made three detailed submissions to the Royal Commission last year.

Thank you for your input. And I look forward to hearing about some of the action items coming out of today's plenary session on trust in the financial services sector.

Findings of the Royal Commission

For our part, to help restore trust, the Government is taking action on all 76 recommendations contained within the Royal Commission's Final Report, and in a number of important areas we're going further.

The Royal Commission's recommendations and the Government's response advance the interests of consumers in four key ways:

  • First, they strengthen and expand the protection for consumers, small business and those in regional and rural communities.
  • Second, they enhance accountability and governance standards.
  • Third, they ensure the effectiveness of our regulators.
  • And fourth, they provide for remediation for those harmed by misconduct.

The Royal Commission final report recognises many of the themes and individual reforms the Government is already pursuing to improve consumer outcomes. The Royal Commission found there is more work to be done and the Government agrees.

As we said in our official response, we're confident the actions announced in response to the Royal Commission will enable those who abuse trust to be held to account.

We are putting in place the legislative framework necessary, and we're providing our regulators with the powers and the resources they need.

In doing so, the community's trust in our financial sector can and will be restored, while at the same time, access to credit and competition will be maintained.

Life insurance

As everyone in this room knows, the Royal Commission unearthed widespread misconduct driven by the pursuit of profit or personal gain at the cost to the consumer.

Commissioner Hayne revealed cases of firms selling knowingly worthless insurance policies, sometimes using aggressive sales tactics.

We also heard cases of poor claims handling.

This is a concern. And as you know, the Royal Commission has made several recommendations for the life insurance industry and I am pleased to outline the Government's actions.

Government actions

Claims handling

The Royal Commission recommended that the handling and settlement of insurance claims should no longer be excluded from the definition of 'financial service'.

The Government acknowledges that inappropriate claims handling practices can cause significant consumer detriment as highlighted in the hearings.

To address this, we have agreed to remove the exemption for the handling and settlement of insurance claims from the definition of a financial service.

We have recently issued a consultation paper on claims handling for general and life insurance.

That consultation paper discusses how to bring claims handling into the definition of 'financial service' and subject it to oversight by ASIC, and seeks your feedback on the options and ramifications of doing so. I would welcome your views on this issue.

Banking Executives Accountability Regime

The Government has accepted the Royal Commission recommendation to expand the Banking Executives Accountability Regime (BEAR) to insurance and superannuation.

The regime means senior executives of life insurance businesses will be subject to the same heightened expectations of accountability that have been imposed on banks, their directors and senior executives.

Extending the BEAR will strengthen the accountability regime, ensuring that a broader range of APRA-regulated entities is held accountable when they fail to comply with their obligations. 

We've gone further. We're introducing a similar regime for non-prudentially regulated financial firms focused on conduct, such as holders of Australian Financial Service and Australian Credit Licences.

This additional measure targets the gaps in the accountability regime identified by the Royal Commission.

We believe introducing this initiative will heighten executive accountability for insurers and super funds.

It is a significant reform; it will ensure clear accountability - a necessary foundation for any institution in establishing and promoting good governance and a strong risk culture.

Life Insurance and superannuation

Superannuation is another part of the financial system where the core focus of the Government is putting consumers first.

In a compulsory superannuation system it's important to protect members' savings against excessive account erosion.

Low balance accounts face disproportionately high fees and are at risk of erosion, particularly where flat fees or insurance premiums are deducted from accounts receiving no contributions.

That is why the Government has taken action to address account erosion, via the Protecting Your Super Package.

I'm pleased to report that last month Parliament passed the first Bill of the package.

This Bill caps administration and investment fees and prescribed costs at 3 per cent of the balance for accounts below $6,000 and bans exit fees for all accounts.

This is good news; the changes will save around 7 million Australians hundreds of millions of dollars in the first year.

The Bill also requires that trustees only offer insurance on an opt-in basis for accounts that have been inactive for 16 months or longer.

This will prevent inactive accounts from being eroded by premiums for cover that members do not know they have or on which they cannot claim.

Importantly, the Bill protects inactive accounts below $6,000 by transferring them to ATO to protect members from further fees and charges. The Bill empowers the ATO to proactively return these amounts, along with existing unclaimed superannuation monies it holds, to an individual's active account.

By doing so, some three million Australians could increase the superannuation in their active accounts by an average of around $2,000 each.

The Government has also introduced a second Bill - the Putting Members' Interests First Bill - which prohibits trustees from providing insurance on an opt-out basis to new members aged under 25 years and to members with account balances below $6,000.

When MySuper was introduced, it required the provision of default insurance for all default members.

The problem is default insurance can result in members paying for cover that they are not aware of, that goes beyond their needs, or which they cannot claim on. 

Insurance premiums can reduce low income earners' (who disproportionately include women) retirement balances by 10 per cent or more (compared to having no insurance), increasing with every additional policy held by an individual. 

The changes in this package aim to better target default insurance and minimise balance erosion due to insurance premiums, particularly for individuals who have duplicate insurance cover through multiple accounts.

Together, these Bills will mean around 5 million individuals will have the opportunity to save an estimated $3 billion in insurance premiums in the first 12 months of the changes by allowing them to choose to opt-in to this cover, rather than paying for it by default.

Superannuation Member Outcomes Package

I'm also pleased to update you on developments relating to the Superannuation Member Outcomes Package.

In February, the Senate passed legislation that implements two key Royal Commission superannuation recommendations.

This Bill will be introduced in the House of Representatives at the earliest opportunity.

In other words, the recommendations are already on their way to becoming law.

First, the Bill implements a recommendation to strengthen the prohibition on inducements by trustees to employers.

This change will allow civil and criminal penalties to be imposed on the trustee of a superannuation fund that provides benefits to employers to influence the choice of fund for their employees.

Second, the Bill implements Commissioner Hayne's recommendation by imposing penalties on trustees for certain breaches of the law, such as not acting in the best interests of members.

Furthermore, the Bill provides stronger powers for APRA and improves transparency and disclosure.

Many of the measures in this Bill have been on the policy agenda for several years and have been recommended by past reviews into superannuation.

This includes the Productivity Commission's recently completed superannuation inquiry which labelled a number of the reforms as "policy must haves".

Role of industry

Life insurance Code

While there are important reforms that can be progressed by Government, industry - everyone here, in fact - has a role to play.

This includes strengthening the operation of the Life Insurance Code, including by enabling sanctions on a subscriber that has breached the Code.

We expect the FSC will take the important steps to seek ASIC's approval of the Code.

In due course, we expect the FSC will work co-operatively with ASIC to have the terms that govern the contract made between the insurer and the policyholder designated as 'enforceable code provisions'.

We imagine this would occur as soon as practicable after the Government passes legislation providing ASIC with these powers.


More broadly, individual firms need to closely examine their culture, governance and remuneration practices, to ensure that they provide appropriate incentives to staff. 

Only strong and decisive action of the kind that leads to lasting change will ensure that the misconduct revealed by the Royal Commission is not repeated.

As Commissioner Hayne has made clear: "there can be no doubt the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities."

That will require not just acting on specific recommendations, but adopting a holistic approach by considering what it means for the sector as a whole and its customers.

Closing remarks

So let me finish by, again, thanking the FSC for inviting me today.

As I said earlier, the Morrison Government is working to restore trust in our financial system and to deliver better consumer outcomes - that's the principal focus of our response to the Royal Commission.

Restoring that trust is vitally important to the health of the life insurance sector, the health of our community and to the health of the economy.

I welcome the opportunity to talk to you directly about the government's approach. I wish you all the best for your conference today.

Thank you.

1 - http://jaf.ministers.treasury.gov.au/media-release/007-2019/