Insurance Industry in Australia and Acts of Parliament - Essay Example

? Insurance Industry in Australia and Acts of Parliament INSURANCE INDUSTRY IN AUSTRALIA AND ACTS OF PARLIAMENT Human beings have come a long way in the process of designing a scheme that alleviates risk and offers financial compensation if unexpected and adverse incident occurs. This scheme is better known as insurance. The existence of insurance has resulted in people living in a relaxed manner and in an environment that is conducive to run business. The Australian insurance industry generates billions of dollars in an annual basis, and it has employed thousands of people. In essence, the insurance industry in Australia offers insurance services to Australians in three major categories, which are: health insurance, life insurance and general insurance. Moreover, the insurance industry in Australia falls under the financial services sector. The above three categories of insurance are regulated by different acts of Parliament. In accordance with Australian pieces of legislation, the major Acts of Parliament that regulate the insurance industry are: (i) The Life Insurance Act (1995), (ii) The Insurance Act 1973 and (iii) The Corporate Act. The government bodies that enforce the above Acts are: “The Australian Taxation Office (ATO)”, “The Australian Securities and Investments Commission (ASIC)”, “The Superannuation Complaints Tribunal (SCT)” and “The Australian Prudential Regulation Authority (APRA)”. This paper provides a report on how the insurance industry in Australia is regulated by the relevant Acts of Parliament. A law in Australia entails an Act passed by the Federal Parliament as stipulated in the Australian Constitution, Acts passed by Legislative Assemblies and State Parliament, Ordinances created in relation to territories, Australian common law and statute laws (Australian Governement Comlaw 2009: 1). General insurance in Australia The main legislation that regulates general insurance in Australia is “The Insurance Act 1973 (Cth) (Insurance Act)”. General insurance in Australia is divided into: (i) liability insurance, and (ii) property insurance. A further categorization of liability insurance has the classes of: worker’s compensation, motor insurance (better known as Compulsory Third Party (CPT)), public liability insurance, insurance for business and professional indemnity. In addition, a further categorization of property insurance has the classes of: travel insurance, home and contents insurance, and motor vehicles comprehensive insurance (Gray 2010: 1). Life insurance in Australia In the Australian insurance industry, life insurance is basically divided into the categories of: superannuation investment, life insurance and disability income insurance. The major acts that govern superannuation investment in Australia are: (i) The Superannuation Industry (Supervision) ACT 1993, and (ii) Financial Services Reforms Act 2002. The “Superannuation Industry (Supervision) Act 1993” is legislation on all the rules of compliance in the insurance industry. In essence, the Act looks into issues that involve: fund accounts and administration, enquiries and complaints, investments, fund management regulation and operation of the vast superannuation funds and setting up penalties for insurers who do not perform in relation to the rules stipulated in the Act. This Act registers all the superannuation trustees in Australian insurance industry. Additionally, all the trustees who seek registration must be qualified in risk management, financial and technology issues and have skills in management profession. On the other hand, the “Financial Services Reform Act 2002” is an Act that provides standardization in the insurance industry in relation with the financial industry. Essentially, it determines if a license to operate a fund should be given a particular superannuation fund trustee. The major roles of the “Financial Services Reform Act 2002” are, firstly, providing license to dealers who are to provide insurance services or products; secondly, determine rules of misconduct in the management of superannuation funds. Thirdly, supervising training programs for representatives of dealers who are known as agents, and, lastly, setting out the level of information which has to be available on insurance or financial products that are given to prospective fund members (Teale 2008: 85). Health insurance Health insurance in Australia is provided through both public and private sectors. Medicare provides public health insurance while private insurance companies offer private health insurance. The legislation “Private Health Insurance Act 2007” regulates private health insurance in Australia (Australian Governement Comlaw 2009: 1). In Australia, the “Australian Taxation Office” (ATO) is charged with the role of ensuring that the private funds, which are managed by insurance companies, conform to the rules and regulations as stipulated by certain Acts of Parliament, and it is the body that collects revenue for the government. In particular, the ATO sees to it that superannuation funds are subjected to taxation according to law. The ATO regulates the insurance industry through the “Competition and Consumer Act 2010” (Rubenstein and De Jong 2004: 7). The “Australian Securities and Investment Commission” (ASIC) is a government agency that is also charged with a major responsibility of regulating insurance companies. The ASIC operates under the following parliamentary Acts: the “Australian Securities and Investment Act 2001 (Cth) (ASIC Act)”, which grants consumer protection, the “Corporations Act 2001 (Cth) (Corporate Act)”, which grants a licensing system for all financial service providers, Superannuation Industry Act (Supervision) Act 1993”, “Insurance Contract Act 1984” and part 10 of “Life Insurance Act 1995”. The “Corporation Act” looks into issues of licensing and conducts of the general insurance providers and insurance intermediaries. It also looks into the disclosure of financial services and financial product to consumers of general insurance products by general insurance providers. The Australian Accounting Standard Board (AASB), which functions under the legislation of “Australian Securities and Investment Act 2001”, develops issues accounting standards of the insurance industry of Australia. “Corporate Act 2001” requires that all insurance companies under its regulation to send application to the Australian Accounting Standards Board to process their financial statements. The AASB has the mandate of organizing the General Purpose Financial reports pertaining to the Australian insurance industry (Teale 2008: 45). The Superannuation Complaints Tribunal (SCT) functions under the “Superannuation (Resolution of Complaints) Act. The Act determines the process in which all the complaints pertaining to superannuation are to be handled, and it further outlines the procedure to be followed when resolving the complaints in questions. SCT as a tribunal has the power of resolving any emerging crises that involve fund member and the management since it is the final problem solving body (Australian Governement Comlaw 2009: 1). In Australia, the authority to operate an insurance business is given by “The Australian Prudential Regulation Authority (APRA)”. In essence, APRA exercises the powers that have been stipulated in the Insurance Act and the Life Insurance Act. Insurance companies are highly advised to abide by the prudential standards which have been established by APRA. This body reviews a company’s application for an insurance business, and if the company qualifies, it has the power to give authorization; however, if the company does not meet the requirements then APRA revokes the application. The APRA through its powers can inspect an insurance company, give directions of compliance and determine an insurance offence, all in accordance with the prudential standards. In addition, APRA has the responsibility of reviewing annual accounts of insurance companies to ensure that prudential standards are maintained. The following legislation woks under the APRA: “Australian Prudential Regulation Authority Act 1988”, “Superannuation Industry (Supervision) Act 1993”, “Banking Act 1959”, “Insurance Act 1973”, “Financial Sector (Collection of Data) Act 2001”, “Financial Sector (Shareholdings) Act 1988”, “Life Insurance Act 1995”, “Financial Sector (Transfer of Business) Act 1999”, “Insurance Acquisition and Takeovers Act 1991” (Financial Industry Service 2011: 24). Insurance companies in Australia operate under a general contract law and an insurance statute contract. Insurance regulatory bodies under the government are charged with the responsibility of regulating the insurance industry through giving operation license, consumer protection and dispute resolution. On the other hand, it is essential that insurers observe the stipulated capital adequacy laws. The legislation that regulates insurance contracts is stipulated under “The Insurance Contract Act 1984” (Financial Industry Service 2011: 14). In accordance with Life Insurance Act 1995, an insurance company must set aside a statutory fund, which is inaccessible by the company. This ensures that the insurance company does not use the statutory fund as an operating fund. The act also stipulates that when an insurance company seizes to operate due to financial problems then a judicial manager should take control of the insurance company. The judicial manager sees to it that other insurance companies take up the policies and claims that were under the company in question (Rubenstein and De Jong 2004: 7). The “Insurance Act 1973” is a legislative Act that calls for reinsurance of general insurance companies. According to “Insurance Act 1973”, insurance companies can reinsure themselves either with local insurance companies or other international insurance companies. The “Insurance Contracts Act 1984” is the main legislation that looks it the relationship between the insurer that is the insurance company, and the insured, the consumer. As a legislative Act, it direct insurance companies when in the process of charging premiums to take into consideration a company’s claim history and risk management strategies. The above legislation asserts that an insurance company can conduct an illegal act of breaching the duty of utmost good faith when it ignores claim history and risk assessment strategies. In this case, duty involves issues of pre-contractual negotiations and contract insurance. The “Local Government Act 1993 NSW” regulates the insurance industry in terms of exempting the council in the event of acting in good faith from public liability for damage, loss or injury sustained by pedestrians falling or tripping on property under the council’s jurisdiction. The “Freedom of Information Act 1982” stipulates that the government has the power to create and authorize the Ombudsman scheme in the insurance industry to investigate complaints of malpractice within the industry and also government maladministration (Financial Industry Service 2011: 44). Conclusion The Australian insurance industry is governed by various legislations that ensure a smooth running of the industry. The major Acts of Parliament that regulate the insurance industry are: The Life Insurance Act (1995), The Insurance Act 1973 and The Corporate Act. Moreover, the industry is ruled by four important bodies which enforce the Acts of Parliament. The government agencies that regulate the insurance industry are: “The Australian Taxation Office (ATO)”, “The Australian Securities and Investments Commission (ASIC)”, “The Superannuation Complaints Tribunal (SCT)” and “The Australian Prudential Regulation Authority (APRA)”. Ultimately, Australian government agencies operate under Acts of Parliament and, as a result, in the smooth functioning of the Australian insurance industry. References Australian Governement Comlaw. (2009) ‘Private Health Insurance Act 2007’. Accessed 1 August 2012 . Commonwealth Consolidated Acts. ‘LIFE INSURANCE ACT 1995’. Accessed 1 August 2012 . Financial Industry Service. ‘General Insurance Industry Survey 2011’, KPMG-Cutting Through Complexity: 1-60. Gray, B. (2010)‘The Basics of Australia’s Insurance Industry’, Intellitrain. Accessed 1 August 2012 . Rubenstein, P. and L. De Jong (2004) ‘Australia’, Global Financial Services Regulators: 1-15. Teale, J. (2008) Insurance and Risk Management. Milton: John Wiley & Sons Australia. Read More