THE jitters left in the wake of the multi-billion collapse of HIH is fostering a new idea to create a pooled fund to compensate customers in the event of another financial services institution’s collapse, well beyond the insurance sector.
THE jitters left in the wake of the multi-billion collapse of HIH is fostering a new idea to create a pooled fund to compensate customers in the event of another financial services institution’s collapse, well beyond the insurance sector.
The Australian Prudential and Regulation Authority has mooted plans to create a pooled fund to compensate customers of financial services institution, in response to the growing community concerns.
Last week the National Australia Bank gave into mounting community and regulatory pressure, announcing that thousands of investors in certain National Australia superannuation funds would receive around $60 million in compensation for losses caused during the transfer of those superannuation funds into MLC funds.
Also last week Australian Prudential Regulation Authority chairman Jeffrey Carmichael told a business gathering in Sydney that the regulator was putting methods into motion that would protect the public.
“We are looking, with Treasury and others, at a possible role for formal compensation arrangements for depositors and insurance policy holders to cover loss in the event that their financial institutions fail – as a few inevitably will from time to time,” he told the Committee for the Economic Development of Australia.
“Australia is in a minority of countries without such schemes.
“This is an emotive topic and one which will undoubtedly occupy a lot of media time if it makes it onto the political agenda.”
Explaining the chairman’s comments, APRA central region general manager Darryl Roberts said that Mr Carmichael was referring to a very abstract proposition.
At this stage the APRA is unwilling to make any formative suggestions as to how such a system would operate.
“It is very much a theoretical academic exercise at this stage,” Mr Roberts told WA Business News.
“Australia is one of the very few countries that doesn’t have compensation measures.
“APRA believes there should be some public policy debate.”
However, Mr Roberts said the APRA was researching and modelling different compensation approaches including introducing a levy on industry to cover the general compensation pool, but the final decision rested with the Government.
“Industry will contribute levies by diverting a small percentage of their revenue into a scheme which will then accumulate,” he said.
However, Mr Roberts said a fundamental shift in ideology would need to occur within the government ranks for any compensation measures to occur – and another inquiry.
“The Government policy after the Wallis inquiry (into the financial sector) was not to put in place such a scheme,” he said.
Mr Roberts said any compensation would have to be capped for it to be viable and the fund would have to be designed not to encourage bad behaviour from companies.
“There are elements of these schemes which are carefully de-signed so that it doesn’t provide the wrong incentives to the financial community,” he said.
The Insurance Industry is already indicating broad support for the concept.
In its submission on Monday to the HIH Royal Commission, the Insurance Council of Australia supported calls for a policy holders protection scheme funded by the industry to cover future insolvencies.
In return it wants a raft of inefficient taxes and charges abolished including stamp duty and the GST.
It wants the States to cede their powers in areas such as workers compensation and compulsory third party insurance.
Speaking on ABC radio this week, Insurance Council CEO Alan Mason said such a scheme could be run by the industry and would respond in the event of a failure of a company.
“It would pay for a failed insurer’s claims, personal injury claims up to 100 per cent of what people are entitled to and then for consumers and small business it would pay ninety per cent of their losses up to say, a limit of $500,000 and that the cost of that should be spread across all people selling insurance,” he said.
The Australian Prudential and Regulation Authority has mooted plans to create a pooled fund to compensate customers of financial services institution, in response to the growing community concerns.
Last week the National Australia Bank gave into mounting community and regulatory pressure, announcing that thousands of investors in certain National Australia superannuation funds would receive around $60 million in compensation for losses caused during the transfer of those superannuation funds into MLC funds.
Also last week Australian Prudential Regulation Authority chairman Jeffrey Carmichael told a business gathering in Sydney that the regulator was putting methods into motion that would protect the public.
“We are looking, with Treasury and others, at a possible role for formal compensation arrangements for depositors and insurance policy holders to cover loss in the event that their financial institutions fail – as a few inevitably will from time to time,” he told the Committee for the Economic Development of Australia.
“Australia is in a minority of countries without such schemes.
“This is an emotive topic and one which will undoubtedly occupy a lot of media time if it makes it onto the political agenda.”
Explaining the chairman’s comments, APRA central region general manager Darryl Roberts said that Mr Carmichael was referring to a very abstract proposition.
At this stage the APRA is unwilling to make any formative suggestions as to how such a system would operate.
“It is very much a theoretical academic exercise at this stage,” Mr Roberts told WA Business News.
“Australia is one of the very few countries that doesn’t have compensation measures.
“APRA believes there should be some public policy debate.”
However, Mr Roberts said the APRA was researching and modelling different compensation approaches including introducing a levy on industry to cover the general compensation pool, but the final decision rested with the Government.
“Industry will contribute levies by diverting a small percentage of their revenue into a scheme which will then accumulate,” he said.
However, Mr Roberts said a fundamental shift in ideology would need to occur within the government ranks for any compensation measures to occur – and another inquiry.
“The Government policy after the Wallis inquiry (into the financial sector) was not to put in place such a scheme,” he said.
Mr Roberts said any compensation would have to be capped for it to be viable and the fund would have to be designed not to encourage bad behaviour from companies.
“There are elements of these schemes which are carefully de-signed so that it doesn’t provide the wrong incentives to the financial community,” he said.
The Insurance Industry is already indicating broad support for the concept.
In its submission on Monday to the HIH Royal Commission, the Insurance Council of Australia supported calls for a policy holders protection scheme funded by the industry to cover future insolvencies.
In return it wants a raft of inefficient taxes and charges abolished including stamp duty and the GST.
It wants the States to cede their powers in areas such as workers compensation and compulsory third party insurance.
Speaking on ABC radio this week, Insurance Council CEO Alan Mason said such a scheme could be run by the industry and would respond in the event of a failure of a company.
“It would pay for a failed insurer’s claims, personal injury claims up to 100 per cent of what people are entitled to and then for consumers and small business it would pay ninety per cent of their losses up to say, a limit of $500,000 and that the cost of that should be spread across all people selling insurance,” he said.
