Post-implementation Review – the Treasury
On 2 June 2008 the Treasurer announced the establishment of a Financial Claims Scheme for General Insurance Policyholders (the Scheme). A Regulation Impact Statement was not prepared by the Treasury for that decision. Consequently, a Post-implementation Review (PIR) was required to be undertaken in line with the Government’s best practice regulation process. The Scheme provides general insurance policyholders with access to funds owing as a result of an insurance claim in the event that their general insurer fails. Prior to the Scheme, where a general insurer failed, policyholders could only settle their claims as a part of the liquidation process. This can be costly and lengthy with the outcome for the policyholder generally uncertain. As such, the Scheme was designed to provide an alternative, and timelier, mechanism through which policyholders could receive outstanding claims. The Scheme does not enable policyholders to access their unexpired premiums paid prior to the failure of a general insurer. However, these premiums may be recovered through the wind-up process, depending on the general insurer’s assets. Under the Scheme, the Government takes on the responsibility to provide the payments to valid policyholders in the event of a failure of a general insurer. Monies paid under the Scheme are then recovered through the wind-up process. Any short-fall is recovered through the imposition of a levy on the general insurance sector. To date, the Scheme has only been activated on one occasion, on 3 July 2009 in relation to the failure of Australian Family Assurance Limited (AustFam). AustFam’s outstanding claims were relatively small. As such, the efficacy of the Scheme is difficult to determine. The main costs of the Scheme are likely to be incurred by the general insurance sector (due to the cost-recovery levy). These costs are likely to be passed onto consumers through higher insurance premiums, or to shareholders through lower returns due to lower profits. Valid policyholders are the greatest beneficiaries of the Scheme as they are likely to have more timely access to their funds in the event that their general insurer fails. The PIR was prepared by the Treasury and assessed as adequate by the Office of Best Practice Regulation.
