National Claims and Policies Database
The National Claims and Policies Database (NCPD) was a response
to the crisis in availability of liability insurance which occurred in 2001-03.
It was prompted by a recommendation of this committee's 2002 report on public
liability and professional indemnity insurance. The committee suggested that
better industry-wide information on risks and claims would help insurers to set
fairer, more stable premiums in these small (in the case of professional
indemnity) and long-tail portfolios.
The database was created at the request of government and is
administered by the Australian Prudential Regulation Authority (APRA), using
powers under the Financial Sector (Collection of Data) Act 2001. It is
intended to give insurers information to help them assess risks and determine
appropriate premiums. It covers public liability, product liability and
professional indemnity. The first data collection occurred in early 2005 and
included claims and policies data from 1 January 2003. All APRA-regulated
insurers must comply (unregulated foreign insurers and discretionary mutual
funds do not have to comply).
Summary reports on policies and claim development are freely
available, with protocols to ensure confidentiality of individual insurers.
For each class, reports show the number of risks written and the gross premium,
and the development of claims.
More detailed reports with breakdowns by occupation and industry classification
(for example) are available by subscription.
On some points (particularly the development of claims), the
database has more detailed information than the NSW Office of Fair Trading HWI
APRA also publishes information on general insurance as a whole
in its Quarterly General Insurance Performance and Half Yearly
General Insurance Bulletin. These reports contain profit-related
information such as loss ratios and underwriting results, some of which is broken
down by the major general insurance classes. Information on home warranty insurance
is gathered, but is not reported separately, as it is a small part (possibly about
5 per cent) of the public and product liability class.
The NCPD database is limited to professional indemnity and public
and product liability insurance. Treasury advised that APRA undertook public
consultations on the specifications of the NCPD in July/August 2003 and October
to December 2003. Information was disseminated by media release and on APRA's
website and submissions were invited. A number of submissions were received
however only a small number of respondents commented on home warranty
insurance. Of those, some strongly opposed including home warranty insurance in
the database, and others queried its inclusion. Reasons for this included that
home warranty insurance would require different specifications and that given
the small number of insurers (in 2003) it would not be possible to publish
information due to the confidentiality requirements that would apply.
It appears that the Builders Collective of Australia was not
aware of the consultation in 2003.
Representative of Vero, the major HWI insurer, advised that Vero did not have
input at that time. Vero had no objection to including HWI in the database now.
They also commented that 'this highly volatile class needs greater consistency
in the actuarial approach to predicting future claims costs'.
This implies that the purpose of the database - to provide better industry-wide
information on small and volatile classes - would be valid for HWI.
Effect of Corporations Regulation 7.1.12(2): retail vs wholesale clients
Corporations Regulation 7.1.12(2) exempts mandatory home warranty
insurance from certain consumer protections in the Corporations Act 2001.
Some submitters thought that this in some way removes HWI from oversight by
APRA, ASIC or the ACCC which would otherwise exist. Some submitters also
thought that the regulation was necessary, and was made deliberately, to
implement the last resort changes to HWI in NSW and Victoria from 1 July 2002.
Some also seemed to think that the regulation was necessary to enable insurers
to demand bank guarantees or deeds of indemnity from builders.
These claims have no basis. They misunderstand the law. In some
cases the concern seems to arise from confusing APRA's role as prudential
regulator with APRA's role collecting information for the National Claims and
Policies Database, discussed above.
In fact Corporations Regulation 7.1.12(2) has no connection with
and no effect on APRA's prudential regulation of insurers. It has no connection
with APRA's information-gathering or with the National Claims and Policies
Database. It has no effect on the general consumer protection powers of ASIC
and the ACCC, or the States' power to make laws about home warranty insurance.
It was not a prerequisite to the scheme changes which took place in NSW and Victoria
from 1 July 2002. Details follow.
Description and context of Corporations Regulation
Chapter 7 of the Corporations Act 2001, enacted in 2002,
imposes requirements for the sake of consumer protection on providers of financial
services and financial products such as general insurance contracts.
A distinction is made between 'retail clients' and 'wholesale clients'. Retail
clients, but not wholesale clients, enjoy -
- access to an external dispute resolution scheme approved by the
Australian Securities and Investments Commission (ASIC);
- compensation arrangements providing cover in case of misconduct
by the licensee;
- the provider's obligation to provide a range of disclosure
documents (financial services guide, statement of advice and/or product
disclosure statement as relevant).
A retail client includes the purchaser of six listed classes of
insurance, including 'a home building insurance product (as defined in the
These provisions were inserted into the Corporations Act by the Financial
Services Reform Act 2001, which came into force on 11 March 2002. This was part of a wide-ranging reform of regulation of financial services, which responded
to recommendations of the 1997 Financial System Inquiry (the Wallis Committee).
The aim of s761G was to make clear that an individual or small business purchaser
of one of the listed classes of insurance is a retail client (except where
another provision shows otherwise), and a purchaser of insurance not on the
list is not a retail client. The listed classes follow the classes subject to
'standard cover' consumer protection provisions in the Insurance Contracts
The Corporations Amendment Regulations 2001 (No.4) supported
the Financial Services Reform Act, and were similarly wide-ranging (the
regulations have 491 pages). Draft regulations were put out for public
consultation in August and September 2001.
The regulations came into force with the main amendments in the Financial
Services Reform Act, on 11 March 2002.
The regulations further define the classes of insurance mentioned
in s761G(5) of the Corporations Act, which determine the scope of 'retail
client'. They list inclusions and exclusions. The exclusions generally follow
the exclusions from the 'standard' cover' protections in the Insurance
Contracts Act 1984: they exclude marine insurance and insurance for the
purposes of a law (including a law of a State or Territory) relating to workers
compensation or compulsory third party compensation.
The exclusions also include (with no direct correlate in the Insurance
Contracts Act) home warranty insurance mandated under state law, as follows:
Corporations Regulation 7.1.12
For subparagraph 761G (5) (b) (ii) of the [Corporations] Act, a
home building insurance product is a contract that provides insurance cover
(whether or not the cover is limited or restricted in any way) in respect of
destruction of or damage to a home building.
A home building insurance product does not include insurance
entered into, or proposed to be entered into, for the purposes of a law
(including a law of a State or Territory) that relates to building or
construction work in relation to a home building.
The result is that the purchaser of mandatory home warranty
insurance is not a 'retail client', so the product disclosure and related provisions
of the Corporations Act do not apply.
The explanatory statement of the Corporations Regulations gave no
clear reason for this particular exclusion. It only said:
The exclusions (some of which were based on section 9 of the
Insurance Contracts Act) have generally been limited to marine insurance,
workers' compensation insurance, compulsory third party insurance and, in the
case of home building insurance, cover required under statute in respect of
residential building works.
Treasury advised that the exclusion was based on the view that if
a state or territory laws mandates certain insurance, the state or territory
law should also be responsible for outlining what disclosure or other consumer
protections should apply:
This exclusion is consistent with the treatment of other state
mandated insurance products such as workers compensation and compulsory third
party motor vehicle insurance. The reason for these exclusions is that, if a
state or territory law mandates a certain type of insurance, in the
Commonwealth’s view, the state or territory law should also be responsible for
outlining what disclosure and/or other consumer protection measures need to
accompany the insurance. If the Commonwealth also regulates in this space,
there is a risk of duplication and/or inconsistency between Commonwealth and
state/territory based regulation which may well increase the overall regulatory
burden and result in increased insurance costs.
Vero Insurance Ltd said:
There is no connection between the HWI 10 point plan and the FRS
amendments to the Corporations Act to introduce product disclosure (to
purchasers of general insurance) other than they occurred at approximately the
same time. HWI was not defined as a retail product because, like workers
compensation and motor compulsory third party insurance, it was mandated
insurance the structure for which was already in place under the relevant state
Further: although the exclusion of mandatory HWI has no direct
correlate in the 'standard cover' provisions of the Insurance Contracts Act, it
is noteworthy that the 'home buildings' section of the standard cover
provisions is clearly directed at loss or damage to a complete, inhabited
dwelling from the usual causes (fire, theft, burst pipes etc).
The intention in the Corporations Regulation may have been to duplicate the
standard cover provisions, but to clarify an exclusion that arguably was already
implied, to avoid doubt.
Further: the exclusion of mandatory HWI is consistent with the
definition of 'home building insurance product' elsewhere in the regulation. A
'home building' does not include a building that is under construction by the
insured (in this case, the builder) in the course of a construction business
(regulation 7.1.12(4)). It appears the intention was to exclude professional
builders, consistent with the underlying concept of 'retail client'.
The National Insurance Brokers' Association thought there would
be little benefit in making home warranty insurance a 'retail' product:
Builders, the policyholders, regularly take out Home Warranty
Insurance and as a result they generally have a sound knowledge of the product.
There would be little or no benefit in designating Home Warranty Insurance to
be a “retail” product under the Corporations Act. Designating Home Warranty
Insurance to be “retail” would simply mean that builders were required to
receive additional disclosure documents that would be no benefit to the vast majority
of them. The additional costs involved would far exceed any potential benefits.
Treasury agreed that there is merit in providing better
information for consumers about the nature of the product, but thought that 'the
Corporations Act may not be the appropriate vehicle for achieving this.'
In this regard it should be remembered that the 'client' in this case is the
builder who purchases the insurance, not the homeowner who is the beneficiary.
The Corporations Act does not regulate the relationship between the insurer and
a third party beneficiary or between the purchaser (builder) and the third
party beneficiary. Corporations Regulation 7.1.12(2) did nothing to change
regulation of those relationships, as they were not regulated under the
Corporations Act in any case. If the regulation was changed to make the builder
purchasing home warranty insurance a 'retail client', this would not address
the demand for better information for homeowners.
Corporations Regulation 7.1.12(2) relates only to the product
disclosure and related provisions in Chapter 7 of the Corporations Act. It did
not remove any consumer protections which previously existed, as it was part of
a new scheme created by the Financial Services Reform Act 2001.
The exclusion of mandatory home warranty insurance from the
product disclosure regime for retail clients was consistent with the precedent
of the 'standard cover' provisions in the Insurance Contracts Act 1984. The
definition of 'home building insurance product' shows an intention that
professional builders should not be regarded as retail clients. The exclusion
is consistent with the exclusion of other state-mandated insurance, on the
grounds that if the state chooses to make insurance mandatory, it should be
responsible for the disclosure regime.
The Corporations Act does not regulate the relationship between the
insurer and a third party beneficiary - in this case, the homeowner. If the
regulation was changed so that a small builder was a retail client, this would
have no bearing on concerns about the improving information to homeowners about
If small builders purchasing home warranty insurance were defined
as retail clients, the most significant effect would be that they would have
access to an external dispute resolution scheme approved by ASIC.
This could include complaints about refusal to insure (which was the main
complaint made by builders in this inquiry).
However it appears that the present dispute resolution scheme intends to
exclude liability insurance generally.
The possibility of including home warranty insurance would have to be
considered in context of the policy on liability insurance generally. It would
not be sound to include home warranty insurance alone as an ad hoc measure.
The relevant dispute resolution scheme is administered by the
Financial Ombudsman Service Ltd. The Financial Ombudsman Service was created on
10 July 2008 as a merger of three former schemes: the Banking and Financial
Services Ombudsman, the Financial Industry Complaints Service, and the
Insurance Ombudsman Service. It is now reviewing the terms of reference of the
three former bodies with the aim of developing a new single terms of reference
Role of the Australian Prudential Regulation
APRA is the prudential regulator of the financial services
industry. APRA regulates private insurers under the Insurance Act 1973.
This includes insurers who provide home warranty insurance contracts. APRA
collects information from insurers using powers under the Financial Sector
(Collection of Data) Act 2001, and uses it to publish quarterly and half
yearly statistical bulletins.
It has been suggested that APRA does not collect data on home
This is wrong. APRA's data collection includes data on home warranty insurance,
though it is not visible separately, as it is gathered and reported as part of
the much larger class 'public and product liability'.
APRA separately collects information on public liability, product
liability and professional indemnity insurance for the National Claims and
Policies Database, as discussed above.
It has been suggested that Corporations Regulation 7.1.12(2) removes
home warranty insurance from some APRA oversight which would otherwise apply
and does apply to other classes of insurance. This is wrong. The regulation has
no connection with and no effect on APRA's activities. Home warranty insurance
has no special status in APRA's prudential regulation or data collection.
Role of the Australian Securities and Investments
ASIC has general consumer protection powers in relation to
financial services as defined in the ASIC Act. These control behaviour such as
unconscionable conduct, misleading or deceptive conduct, bait advertising,
pyramid selling and so on. They mirror provisions in the Trade Practices Act which
the Australian Competition and Consumer Commission (ACCC) administers except in
relation to financial services.
This general consumer protection law applies to all contracts of
and this is not affected by Corporations Regulation 7.1.12(2). There was no
suggestion in this inquiry that home warranty insurers have offended against
the general consumer protection law.
Corporations Regulation 7.1.12(2) and state laws
The states have general legislative power.
The Commonwealth has legislative power on the subjects listed in section 51 of
the Constitution. If a state law and a Commonwealth law conflict, the
Commonwealth law prevails to the extent of any inconsistency.
Corporations Regulation 7.1.12(2) relates only to the product
disclosure and related provisions of the Commonwealth Corporations Act 2001.
It has no connection with and no effect on the state laws which mandate
home warranty insurance. It was not a prerequisite to implementing the last
resort changes to HWI which NSW and Victoria made from 1 July 2002. This was done under state law using the states' general legislative power. The fact
that the regulation was made about the same time was a coincidence. As
explained above, the regulation was a small part of a wide-ranging reform of
financial services law which had been under development for four years. It
reflects precedents that go back to the Insurance Contracts Act 1984.
Claims of conflict of interest within the HIA
The Housing Industry Association Ltd (HIA) is Australia's largest
builder organisation. It has over 40,000 members and revenue of $88.5 million
in 2007. It is a non-profit public company limited by guarantee. It has no shareholders
and does not pay dividends to members. Revenue is used to provide services for
The HIA supports privatised last resort home warranty insurance
(though in this inquiry it made some suggestions for reform, as discussed
previously) and opposes suggestions to return to a Queensland-style government
Some submitters of the opposite view claimed or implied that the
HIA has a conflict of interest in this matter, since (they believe) the HIA is
acting contrary to its members' interests, and suppressing internal dissent,
for the sake of the income it gets from the insurance.
The HIA advised that 'revenue from activities associated with HWI
accounts for about 3 per cent of HIA's gross revenue from all sources.'
The HIA is half owner of HIA Insurances Services Pty Ltd (HIAIS),
an insurance broking business.
HIAIS is one of about 250 brokers in Australia who do home warranty business.
HIAIS is the biggest of these, with about 40 per cent market share of the home
warranty business. HIAIS also brokers other insurances for builders.
Mr Donovan of HIA Insurance Services said 'there is no
compulsion, there is no necessity, for a HIA member to use HIA Insurance Services.
Likewise, many clients of ours are not HIA members.'
In 2007 the HIA received $2.35 million as its share of HIAIS
profits attributable to home warranty insurance. This was 2.6 per cent of HIA
revenue of $88.5 million.
That percentage has been declining in recent years and is expected to continue
HIAIS also pays the HIA for office accommodation and marketing services on a
commercial basis. HIAIS gave the committee confidentially recent figures for
these payments. They are small in proportion to the licence fee payments and do
not change the general conclusions about the HIA's income from HIAIS.
The HIA advised that no HIA member or staffer has shares in
HIAIS (HIAIS has no individual shareholders). Two HIA staff are directors of
HIAIS, but they receive no payment for that.
HIAIS makes no loans to HIA or anyone within HIA.
On the suggestion that the HIA is prejudiced by a vested interest
in the status quo, the HIA manager director Dr Silberberg said:
I am bemused by the observation that HIA has some conflict of
interest which prejudices its objectivity in looking at this or any other
matter. Our National Policy Congress took a decision to support voluntary home
warranty. If we were solely guided by some sort of financial motive, why would
HIA support a policy of voluntary home warranty in the states outside of Queensland?
As to whether the HIA is suppressing internal dissent: the HIA
does not have a structure in which ordinary members can requisition a general
meeting of the whole association (which is the default rule under s249D of the Corporations
Act 2001). The HIA has a structure in which only certain regional and
national office-bearers (and a few others ex-officio) are entitled to attend
and vote at general meetings of the whole association.
The regional and national office-bearers are elected by outgoing committees,
not directly by the members. The Articles of Association appear to envisage
that grass roots involvement takes place at the branch level (to the extent
allowed by the relevant regional executive committee), and members' views are
then passed up to regional executive committees and taken by the regional
office bearers to the national policy congress and general meetings of the
In provisions similar to s249D of the Corporations Act, ten per
cent of those entitled to vote at a general meeting of the whole association
can requisition a general meeting, and ten per cent of the members in a region
can requisition a general meeting of the region.
Dr Silberberg of the HIA commented on the suggestion that the HIA
does not properly represent its members:
We survey our members regularly and we have in excess of 40,000.
We ask them what are the issues that occupy their minds, that keep them awake
at night. Home warranty has dropped off the radar. For many builders it is a
past issue... today 70 per cent of residential builders in New South Wales and Victoria
are in the top-rated categories, so they enjoy the lowest premiums. Go back to
2001 when HIH collapsed: less than 10 per cent of builders were in the top
categories as rated by Royal and Sun Alliance at that time, so there has been a
significant shift by the industry.
On the evidence the HIA receives about 2.6 per cent of its income
from its connection with brokering home warranty insurance. In recent years
that figure has been declining. The Committee does not see evidence that the
HIA's views on home warranty insurance is improperly influenced by that income.
The HIA supports its views with various arguments. Whether or not one agrees
with them, there is no reason to think its views are not held bona fide.
The Committee received evidence which shows there are hostile
relationships between the HIA and some members and former members who disagree
with the HIA's policy on home warranty insurance. The committee does not know
the full context and did not question the HIA in detail on these complaints
(since they are marginal to the policy issues which were the focus of the
inquiry). The committee takes no view on whether the HIA's approach to these
debates is reasonable. The Committee takes no view on whether the HIA's
representative structure described above is effective at acting on the views of
Allegations about Senator Helen Coonan
During the inquiry allegations were made about the Hon. Senator Helen
Coonan, former Minister for Revenue and Assistant Treasurer in the Howard
government. The allegations are discussed in Appendix 4. The committee
concluded that there was no reason to investigate the allegations against Senator
Coonan nor any reason to refer the allegations to any other body.
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