Insurance Brokers Association Annual Conference
Hon Lianne Dalziel
23 August 2002 Speech Notes
Address to Independent Insurance Brokers Association Annual Conference
Christchurch Convention Centre
Thank you very much for the opportunity to address you this morning. The invitation was addressed to the Prime Minister and I bring her apologies. The invitation was then referred to me as Minister for ACC, and then I referred it to Hon Ruth Dyson as the incoming Minister. Unfortunately she had a prior out-of-town commitment this morning, but she did want me to signal to you her willingness to meet with your Association if you were keen to do so.
However I have decided to use this as an opportunity to introduce myself to you as the new Minister of Commerce, because I want to signal some proposed changes in the legislative and regulatory framework for the insurance industry, and I want to mention an area of potential mutual interest as Minister of Immigration.
But first allow me to respond to the question I was posed by your association for this address: “Why was ACC taken from the Private Sector?”
My initial response to this question was to pose another, and that was why was ACC opened up to the private sector in the first place?
When an incoming Labour-led government removed the workplace account from the insurance market, there was the anticipated protest from the insurance industry, however, no-one could say that it was a surprise.
The decision was well-signalled, both when the Accident Insurance Act was in the House and in the manifestos of the parties that ultimately formed a coalition government.
When the 1998 Act was in the House, the Labour spokesperson, Ruth Dyson, was explicit in terms of Labour’s lack of enthusiasm over the introduction of competition into the workplace account. She said:
“Labour opposes privatisation of accident compensation. Labour opposes this Bill, and at the very earliest opportunity after the election this Bill will go.”
In fact she went on to say:
“I ask the Minister: if privatisation is the answer, what is the question? The question should be: how do we have the highest level of injury prevention in NZ? How do we ensure competent and speedy rehabilitation of injured people, back to, as much as possible, their pre-injury social and economic status? How do we deliver compensation in a way that truly compensates people for that we gave up as a society: the right to sue?”
When we removed that competition, the then Minister for Accident Insurance, Michael Cullen, said this:
“The government is convinced that had the present legislation continued – and indeed the insurance industry has suggested it – the area of litigation for compensation would have widened as the insurance industry sought to narrow the area covered by compulsory accident insurance. It would have led to a progressive departure from the principles of the Woodhouse report. This government is not prepared to allow that to happen.”
And that is the simple answer to the question you posed. We took ACC from the private sector, because it didn’t belong there in the first place.
There is a mantra that became very popular in the late 80s and into the 90s, that ‘private was good, public was bad’. It is my view that mantra style politics excuse people from thinking through the issues. The statement ‘private is good, public is bad’ is as flawed as the statement ‘public is good, private is bad’.
You need to get underneath the mantras, and ask some more fundamental questions. Which is why my instinct was to ask whether ACC should have been given to the private sector in the first place. But to do so would have meant that I had taken a shortcut as well. The real question, in my view, is this: ‘would the provision of accident cover benefit from the gains that managed competition could bring, weighed against the risk of market failure and the effects of what would have become a disaggregated resource?’
It is a similar question that we could pose around health and education. I believe the evidence stacks up in favour of public provision – the American health system is a stark contrast to our own, and although I am aware that the litigious nature of American society has added immeasurably to the cost of health and accident cover, the bottom line is that in a country this size, the economy of scale requires us to start from the position of public provision. And there is no guarantee that the right to sue would not have been on the agenda again as predicted by Dr Cullen.
The question you should be asking is what does competition add to the mix?
My fundamental objection to the insurance market is that there must in the end be pressure to subject that market to the least restrictive legislative framework, and ultimately to expose that market to litigation as a means of minimising risk and limiting liability.
As a lawyer I can say with confidence that it is the lawyers who are the real winners in that environment, because that is their ‘market’, and as people have to use lawyers to enter that ‘market’, the pressure for contingency fees will be the norm, which again restricts access to what are presently statutory entitlements.
Although the Law Society is still considering a complaint against local lawyers, Wakefields’ and their attempt to corner the ACC claim ‘market’ in one particular area, this would become the norm under an open scheme.
Competition does not always bring benefits. And I believe the insurance industry was not well-served by the Insurance Council in the hysteria it attempted to beat-up during the passage of the Accident Insurance (Transitional Provisions) Bill.
However, that is history now, and the fact that New Zealand employers now enjoy lower average levies than existed during the brief period of privatisation, and, indeed, lower average levies for more coverage than all states in Australia is the real reason why we won’t see the privatisation of the scheme on the agenda again. Even the National Party is going to have to radically re-think its policy in this regard, as it simply doesn’t stack up against the facts.
The restoration of the social contract and a return to the founding principles of the scheme, community responsibility, comprehensive entitlement, complete rehabilitation, real compensation and administrative efficiency as represented by the Injury Prevention, Rehabilitation and Compensation Act will put an end to this matter for a very long time indeed.
Perhaps I could identify one of the flaws of the insurance model that we have sought to address in the new legislation.
I am a firm believer that the so-called ‘tail’ of long-term ACC claimants have to a large extent had a raw deal. The vast majority of that group was initially denied cover under the scheme. The time spent over-turning that decline was essentially lost to rehabilitation.
The focus today is getting the rehabilitation going immediately, even using treatment rehabilitation, as part of the cover assessment process. This has led to a dramatic reduction in the proportion of long-term claimants entering the category. This front-end approach is absolutely the way to go, because I meet people who I doubt will ever enter the paid workforce again, largely because they were abandoned by a system that did not see itself as part of the whole of government. Transferring someone from ACC to an invalid’s benefit is not a successful outcome if we are measuring success in terms of rehabilitation – it is only a successful outcome in terms of limiting liability.
That does not mean there is no role for the insurance industry. ACC does not cover every injury in every setting, nor does our benefit system offer much more than an income-tested, (spouse included), safety net. I often wonder if the insurance industry has fully exploited these gaps for marketing products to those who would benefit from them? I also ask myself whether the insurance industry has contemplated other products, that may be of use in addressing pressures on ACC and Vote: Health by visitors to New Zealand.
As Minister of Immigration I have taken up renewed interest in this subject, and I am keen to look to your industry to see whether a solution can be found that addresses healthcare and injury costs for those in New Zealand on temporary permits.
The other element that I raised is that of market failure. The mantra chanters went very quiet when HIH collapsed and when one of the Australian Medical indemnifiers failed as well.
This is what ACC protects New Zealand from. And it amazes me that all the Australian mantra chanters, who were seeking privatisation of Work Cover– led by HIH until it went belly-up I might add – were quite happy to see the government step into the breach. Why should the taxpayer ultimately carry the risk of market failure?
In the cases of HIH and United Medical Protection, both the Australian Federal and State governments were exposed to enormous risks, and in the case of HIH the true cost is still not yet known as the inquiry carries on. I often remind people that HIH held 40% of workplace cover in New Zealand during that window of privatisation, and fortunately the timely sale may have prevented an exposure to risk that could have had disastrous consequences for the insurance industry as well as the NZ government.
The bottom line is that as a small country, our advantage comes from the economy of scale that can be gained by spreading risk over the whole of the population. It is true that the legislated prohibition on suing for personal injury covered by the scheme is the other advantage we hold, but it is threatened by exposure to the insurance industry principles that run counter to the founding principles of the scheme.
New Zealand has, as a result of ACC and the prohibition on suing each other, been protected from the worldwide skyrocketing of premiums in the wake of September 11, and from the massive damages claims that are exposing community groups to untenable levels of risk that are seeing them walk away from service provision that we take for granted here – look at the $3.75M awarded to a surfer at Bondii Beach for diving under a wave between the flags – do we want beaches to have flags, because if we don’t then that is the right way to achieve it – punish those who take responsibility by making them financially responsible for all the consequences!
And now I put on my Commerce hat, because this leads into the NZ government’s initial response to these world events.
However, I do want to say how pleased I am to be undertaking the Commerce role. For those who do not know my background I am a qualified lawyer, and in my first three years in Parliament I undertook the role as the associate opposition Justice spokesperson.
As a result I sat on the select committee that put through many of the company law reforms of the early 90s. I should also say to your industry that I took Insurance Law as one of my electives for my law degree, which of course is a considerable time ago now, but I I want to indicate to you at least my academic interest in a subject that I will now be taking a practical interest in.
Prior to the election Cabinet considered a proposal to amend the law governing general non-life insurers, namely the Insurance Companies (Ratings & Inspections) Act 1994 and the Insurance Companies’ Deposits Act 1953.
The proposed amendments will require all non-life insurers, without exemption, to seek and disclose annual ratings from an approved ratings agency. These ratings provide an independent expert assessment of the insurer’s financial strength, which is important information in terms of consumer protection.
In addition insurers will be required to file annual financial statements complying with current financial reporting standards. Of course, as these standards are already in use, this means no change to compliance costs.
It is the intention that deposits currently held by the Public Trustee under the Insurance Companies Deposits Act 1953 will no longer be required of insurers and those already held will be refunded to the industry. They are widely regarded as outdated, inconsistent and inadequate to protect consumers anyway.
It is intended that insurance brokers will still be expected to pay the deposit, as they not subject to the rating provisions, however, it creates an anomaly which some may wish to debate. I would be very interested in your feedback on the proposal.
Approval has been given to drafting the amendments and I would anticipate a Bill being introduced to the House next year, so we still have a long way to go before final sign off to a Bill is given.
As you are aware life insurance is subject to an entirely separate review, which will involve a fundamental reassessment of the way in which we regulate the life insurance industry considering the various models available internationally.
So although I came today as the former Minister for ACC, I have really indicated to you that I am looking forward to developing a relationship with your Association as Minister of Commerce, and I am very interested in opening a dialogue with you as Minister of Immigration, as I believe you have something to offer by way of a resolution to something I have long regarded as a problem.
My advice is take your eye off ACC – it’s not for sale under this government, and I believe that now most of the rhetoric has proved to be nothing more than that, and as the scheme stabilises once more, then I think it will find itself permanently off the market, because anyone who promises privatisation will not be able to get the electoral support they need to implement the promise.
Let’s instead talk to each other about where the products you broker can assist this government in its wider objectives and how we can provide a market friendly and consumer focussed regulatory environment for the insurance industry that gets the balance right.
For those of you who don’t know me, I am one that strongly believes in getting the balance right, and I look forward to the discussion that will now follow.