How Insurance Is Regulated by the Relevant Acts of Parliament in Australia - Case Study Example

Running Header: Insurance Planning Student’s Name: Instructor’s Name: Course Code: Date of Submission: Transmittal letter Dear Sir/Madam, With regard to the task assigned to me on Insurance planning in Australia that required me to give a report on the outlining the legislative requirements of the insurance industry, I wish to submit my report on how insurance is regulated by the relevant Acts of Parliament. The report has entirely summarized the how insurance is regulated by the relevant Acts of Parliament in Australia. I sincerely thank you for giving me the opportunity to work on this report and look forward to discussing with you incase of any concern. Yours sincerely: Table of Contents Transmittal letter 2 Table of Contents 3 Executive Summary 4 Introduction 4 Main Body 4 Conclusion 10 References 11 Executive Summary This essay is a report outlining the legislative requirements of the insurance industry. It outlines how the insurance industry is regulated by the relevant Acts of Parliament. They are several legislative requirements in insurance industry; these requirements are usually set by the parliament. Various acts of parliament have been established in Australia in relation to insurance industry including Insurance Act of 1973, the insurance contracts Act of 1984, health insurance Act of 2007 and insurance Act of 1995. The Australian insurance law regulates insurance in Australia. Introduction The structure of the Australian insurance industry and the insurance needs of individual Australian citizens are quite unique and sophisticated. The insurance market in Australia can be broadly categorized into three basic components. These are health insurance, general insurance and life insurance. All these components of the insurance market are fairly distinct. Larger insurance companies have been known to focus on only one type of insurance but these trends are currently changing because most insurers are now broadening their scope of services into general finance. This has seen a lot of competition from banks, foreign financial conglomerates and their subsidiaries as illustrated by Anderson (2001). Main Body The Australian insurance industry is therefore structured to include the three components of life, general and health insurance. The life insurance component was traditionally made up of companies that were mutual. This trend changed in the 1980s and 1990s when most of these companies were demutualized. Other companies were owned by banks. The insurers in Australia who deal with life insurance sell products that include disability income insurance and term life insurance. Some of the major insurance companies that provide life insurance include AXA, AMP Limited, Macquarie Life, MLC and Allianz Australia. Other credit unions and friendly societies also sell life insurance according to Macintyre (2000). General insurers in Australia sell products that can be broadly categorized into two classes. These are property insurance which covers homes, travelling and comprehensive insurance for motor vehicles. The other category is liability insurance which include the coverage of third party motor vehicle insurance, business insurance, professional indemnity insurance, worker’s compensation and public liability. The major general insurance providers are the Insurance Australia Group which comprises of SGIO, RACV, NRMA and CGU; Suncorp which is made up of APIA, GIO, AAMI, Bingle and Just car; and QBE. Other in the industry who provide general insurance include Allianz Australia, Hollard Insurance, Westfarmers, Zurich insurance, Calliden, Progressive direct and Budget direct. General insurance has a more diverse structure due to the complexity of ownership. There are more independent general insurers who stand alone in the industry as stated by Borland (2001). Universal health insurance in Australia is mainly provided by the Australian government. The service is referred to as Medicare. The Australian government only allows private insurance companies to provide health insurance services that are not in the coverage of Medicare or those that deal with services found in private hospitals. The taxation system in Australia is known to encourage the middle to high-class income earners to consider investing in the private health insurance. Most health insurance providers in Australia are mutuals. The largest health insurance provider in Australia is the Medibank Private. It is owned by the government o Australia as illustrated by Anderson (2001). Insurance in Australia is regulated by the Australian insurance law. This term is used in reference to the body of the law that is mandated to regulate the insurance contracts and the insurance industry within Australia. The authority to make these laws regarding insurance and all insurance companies lies within the Commonwealth Parliament. It is found in the Australian Constitution under section 51 XIV and XX. In relation to insurance, the body of law refers to the Insurance Act of 1973 and the Insurance Contracts Act of 1984. The states have however enacted legislations which are also used as points of reference when it comes to voluminous case laws and private codes (Mann, 2003). The insurance act of 1973 provides that there should be minimum levels of solvency and capital for all companies that wanted to enter the insurance industry and for those companies that were already in the market. This regulates the insurance sector by ensuring that all the players, especially the insurance firms, have the minimum required levels of capital to remain in business. The Corporations Act of 2001 regulates the manner in which insurance companies, their agents and insurance brokers conduct their business. It also regulates how these companies deal with the people that they are involved in business with and the people that it plans on doing business with. This ensures fairness and consistency in how all the players of the insurance industry deal with each other. The Insurance Contracts Act of 1984 is mostly applied to the coverage of insurance contracts within Australia and its connections. It is meant to strike a fair balance and play between the interests of the person providing insurance and the person being insured. The primary focus of this Act is to protect the interests of the insured and the insurer. The main regulators in the insurance industry in Australia are the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investment Commission (ASIC). The Australian Prudential Regulatory Commission (APRA) is the chief prudential regulator of the financial services industry in Australia. It is a statutory authority, meaning that it was formed by an Act of Parliament. It is therefore legally recognized by the law and it is mandated to carry out several functions. The scope of APRAs regulation is that it oversees the operations and dealing of banks, building societies, general reinsurance and insurance companies, credit unions, friendly societies, members of the superannuation industry and life insurance. APRA was formally established on 1st July, 1998. The industries that APRA supervises are its major sources of funds. The institutions that it supervises currently hold approximately 3.6 trillion Australian dollars in terms of assets. These assets are held for policyholders, superannuation fund members and the depositors from Australia. APRA regulates the banks, superannuation funds, life and general insurance companies, friendly societies, building societies and credit unions so that it can monitor and check whether these institutions keep and uphold their financial promises. APRA is mandated to ensure that they will remain financially sound and meet the obligations that they had promised the depositors, policyholders and fund members. Financial corporations are also supposed to be registered by APRA. The Australian Prudential Regulation Authority has a long history. It was established because of the need to have an independent, free and fair authority to oversee the general dealing of major financial corporations. Its predecessors were the Reserve Bank of Australia, the Australian Financial Institutions Commission (AFIC) and the Insurance and Superannuation Commission (ISC) as argued by Anderson (2001). The Financial System Inquiry of that time, known as the Wallis inquiry, recommended that there should be a new structure to deal with overseeing the operations of major financial institutions, which included insurers. Among these recommendations was APRA, which was initially meant to regulate life and general insurance, authorized deposit taking institutions and superannuation. This was in 1996 but APRA came to be established in 1998 under the Australian Prudential Regulation Act of 1998. It became very prominent and was linked to the collapse of HIH insurance in 2001. It also held successful investigations at the National Australian Bank in 2004 in regard to the scandal on foreign currency. APRA uses on-site and off-site analysis as the two main supervisory tools. It deploys prudential supervisors who have prior in-depth knowledge about the financial institutions that they are dealing with (Meredith, 2000). The other regulator in the insurance industry in Australia is the Australian Securities and Investments Commission (ASIC). The ASIC is an independent body owned by the Australian government that is meant to act as the chief corporate regulator in Australia. The main roles of ASIC include the regulating and enforcing of financial services and company laws with the overall aim of protecting Australian investors, consumers and creditors (Greg, 2008). The Australian Securities and Investments Commission was originally known as the Australian Securities Commission (ASC). It was originally formed on 1st January 1991, which was in accordance with the ASC Act of 1989. The ASC was originally intended to act as unifying body of corporate regulators. It replaced the National Companies and Securities Commission. In 1998, the ASIC was now the corporate regulator. It was mandated with the authority to ensure that consumers are protected in insurance, credit, deposit taking and superannuation. The main areas of responsibility of the Australian Securities and Investments Commission were to oversee insurance, corporate governance, consumer protection, financial services, financial literacy and securities and derivatives. It was responsible for generally administering the ICA. The Reserve Bank of Australia started its operations on 14th January 1960. It was meant to act as the central bank in Australia and the chief authority of issuing banknotes. The Reserve Bank Act of 1959 saw the removal of the functions of the Commonwealth bank to the Reserve Bank of Australia. The bank’s original responsibility was to provide the Government of Australia with financial services. It was also meant to provide some of these services to other official institutions and central banks. It is among the key regulators of the financial services industry in Australia. The Reserve Bank of Australia regulates the insurance industry by making monetary policy decisions that are aimed at ensuring that inflation remains low and stable. The responsibility of maintaining and managing a steady financial system is left to the Reserve Bank of Australia. The foreign reserves of Australia are managed by the Reserve bank of Australia. The Commonwealth government is provided with banking services by this bank and it is the issuer of Australian currency notes. By providing all these services, the Reserve Bank of Australia influences and regulates the insurance industry. This is because the bank manages foreign reserves and controls financial systems, which include insurance firms so as to ensure that the economy is low and stable as stated by Greg (2008). There have been other several Acts of Parliament that have regulated the insurance industry in Australia. Some of the main federal regulation legislations in Australia include the Insurance Act of 1973 which was meant to regulate the general insurance industry. The life insurance Act of 1995 was supposed to regulate the life insurance industry in Australia. The health insurance Act of 2007 was aimed at providing consumer protection by regulating the health insurance sector of the country. The insurance contracts Act of 1984 was also aimed at ensuring consumer protection by regulating all insurance policies. There was also the chapter 7 of the corporations Act of 2007 which was supposed to ensure consumer protection by monitoring insurance policies as argued by Dowrick (2001). Conclusion In conclusion, the insurance industry in Australia has been described as unique and sophisticated. The industry is divided into the three categories that have been discussed in the essay, which are life, health and general insurance. All these categories of insurance have their key players in the market and there are several regulatory bodies which are charged with different responsibilities in regard to the insurance sector. These regulators include the ASIC, APRA and the Reserve Bank of Australia. They all have a role plat in the insurance sector of the country. There have also been several Acts of Parliament that have seen the country’s insurance sector experience tremendous changes (Greg, 2008). References Anderson, K 2001, Australia in the International Economy, Cambridge University Press, Cambridge. Borland, J 2001 Unemployment, Cambridge University Press, Cambridge. Butlin, N 2004, Investment in Australian Economic Development, Cambridge University Press, Cambridge. Dowrick, S 2001, Productivity Boom: Miracle or Mirage? Cambridge University Press, Cambridge. Greg, P 2008, Australian Insurance Law: A First Reference,  LexisNexis Butterworths, Chatswood. Macintyre, S 2000, A Concise History of Australia. Cambridge University Press, Cambridge. Maddison, A 2003, The World Economy: Historical Statistics, OECD, Paris. Meredith, D & Barrie, D 2000,  Australia in the Global Economy: Continuity and Change. Cambridge University Press, Cambridge. Mann, P. and Candace, L. 2003, Annotated Insurance Contracts Act, 4th edition, Lawbook Company, Pyrmont. Sinclair, W 2001, The Process of Economic Development in Australia, Cheshire, Melbourne. Snooks, G 2004, Portrait of the Family within the Total Economy, Australia Since 1788. Cambridge University Press, Cambridge. Read More