Subjects: HIH insurance; Housing figures; St Vincent de Paul report.
E&OE................................
PRIME MINISTER:
Well ladies and gentlemen Cabinet has spent some time today discussing the HIH matter. It is obviously of great concern to the Government. We do believe the Federal Government has a responsibility to help in general areas of real hardship.
The State Governments of Australia have responsibilities in relation to statutory obligations for insurance - areas such as motor vehicle third party, workers compensation and the like.
I welcome the fact that State Governments have indicated a willingness to accept their responsibilities in those areas.
We are of course willing to provide whatever resources are needed to the Australian Securities and Investment Commission to investigate the conduct of the company, the conduct of the company's directors and whether there has been any breach of the law. We believe the book should be thrown at any who have been guilty of a breach of the law and resources available will be sufficient to ensure a full and adequate investigation.
It's also my intention to write to the Premiers and Chief Ministers seeking their co-operation to undertake a thorough review of State and Territory regulation with a view to introducing single national insurance schemes in compulsory third party, workers' compensation and builders' warranty insurance.
We also in terms of fast-track legislative changes to the general insurance industry and we'll work with the industry to bring forward the start of this new regime. This will require insurance companies to improve their capital adequacy well ahead of the timetable previously announced.
Very importantly we intend to open discussions with other insurance companies to take over from HIH the existing and future claims for certain classes of policies. The Government is prepared to make available substantial resources out of the budget to assist with this transfer.
We would prefer not to impose a levy. There are inequitable features of an insurance levy in these circumstances and we can well understand the objections of many in the community, particularly those who for a combination of reasons chose not to insure with HIH resenting being required to fund a levy to meet the failures of the very company they decided not to insure with. As a matter of ordinary equity that is a very important consideration.
So our preference and I stress through the use of the word, that it is a preference not to impose a levy. We obviously are concerned about the impact on the budget but we believe we are in a position to make a substantial amount of money over a period of years available in order to assist.
So, what we intend to do immediately is to open negotiations with other insurance companies with a view to them taking over the bad policies or the bad books, I think is the expression that is used, subject to appropriate conditions and subject to of course hardship cases being the focus of our assistance and the focus of our help. We don't intend to fund out of the budget the taking over all the policies, the bad policies of HIH, but rather we want to focus on those areas where there is a genuine hardship.
We will commence those negotiations immediately. This in fact is one of the quickest ways of dealing with the processing of insurance claims for people who are in a very difficult financial position. One alternative would have been to have established a completely new body in order to process those claims but of course that would have taken a lot of time and I would have taken a lot of effort and time for that new body to establish the necessary expertise. But if we can negotiate an arrangement with another insurance company to take over the bad books in the areas where there's real hardship then in that way the people suffering that hardship can be more speedily assisted and have their claims more readily dealt with than any alternative that's been in front of the Government.
In the meantime we continue to ensure through Centrelink that immediate demand on social security are met speedily and rapidly. The negotiations with the companies will commence immediately and I would expect that Mr Hockey would have something further to say on that matter very soon.
JOURNALIST:
Prime Minister could you explain exactly what you mean by taking over the bad books?
PRIME MINISTER:
What we're going to do is negotiate an arrangement with an another insurance company whereby with government assistance that insurance company will settle the claims that HIH is in no position to settle.
JOURNALIST:
Why does that impact on the budget though?
PRIME MINISTER:
Well because they will need our money in order to fund the settlement of the claims. They're not going to do that out of their own pockets. We will negotiate an arrangement whereby we will advance the money to the company on certain conditions, they will want to be recompensed, they will want a commission, we have to work all of that out. But that is an infinitely better way than setting up a new company that would start from scratch. Now we have to enter into discussions with other insurance companies, the Government will stand behind the insurance company in relation to those claims that if on hardship grounds believe should be met.
JOURNALIST:
What sort of impact will that have financially on the federal government?
PRIME MINISTER:
Well it's going to be quite expensive. This is going to be a very expensive operation but we are not prepared to see people who are suffering genuine hardship be destroyed. But there are some people who are going to miss out. People whose hardship is not extreme, very large companies, some areas of policies. But there are clearly things like salary maintenance policies, and the like, there are some quite tragic cases coming to light and we think this in the end is a community responsibility and preferably not one that should just be borne by the policy holders of other companies because as I said earlier, it's a bit rough if you decided for good reason not to insure with HIH and because HIH fell over and your judgement was proved correct, you have to end up paying for it and that essentially is what a lot of people have put to us, and I think they've got a case. Now, I repeat, it is our preference not to invoke a levy or to use a levy and obviously because the money will be coming out of the budget and it will be over a period of years. Some people have estimated about 10 years to settle all of this - it could be a drain over a period of years. But we think this a better way of doing it than the imposition of a levy.
JOURNALIST:
Will it be in the tens of millions of dollars or the hundreds of millions?
PRIME MINISTER:
Look I'm not going to speculate on a precise figure. It's a lot of money. But until we have more information from the liquidator I don't really know, nobody knows. Everybody is shooting in the dark a bit but we're not going to wait till we get the liquidator's report, we're going to start negotiations immediately with other insurance companies. And we think we can reach an arrangement whereby we are entering into a agreement where the companies stand in the place of HIH in respect of these hardship cases, meets the claims and then we fund it within relation to those claims by the Government. There would have to be some arrangement whereby obviously the companies themselves would need to be paid some kind of commission but obviously it would have to be worth the companies' financial while to it. We think this is the most efficient, effective, speedy way and it will be on the understanding that we're not going to meet every claim. There's no way we can do that. I have to make it very clear now that there's no way that we can meet every claim but there is a responsibility in hardship cases and it is our view that preferably that is a general community responsibility and that's something that should be by way of a special levy.
JOURNALIST:
Will you still deliver a surplus in a week's time?
PRIME MINISTER:
Tune in. Tune in.
JOURNALIST:
Prime Minister is the door still open for a levy - you say it is not your preference but have you ruled it out?
PRIME MINISTER:
It is not our preference.
JOURNALIST:
When will you decide whether or not a levy will be imposed Prime Minister?
PRIME MINISTER:
Well I think you are misunderstanding what I'm saying by asking the question in that form. Quite plainly we've looked at the levy, we would prefer not to do it but for reasons of proper prudence and caution I am not going to put it any more strongly than that at this stage.
What we are doing is we are prepared to commit funds out of the Budget. So obviously that's our preference but until we know the full dimension of what might be required it would be foolish of me to be any more hard and fast than that.
JOURNALIST:
You're obviously setting a precedent with this. Has there been any discussion about if another insurance company goes under?
PRIME MINISTER:
Well life is full of unexpected things and the question of whether it sets a precedent, I think we overdo this business of whether we set precedents or not. When we have difficult situations like this you have to look at the merits. And the merits of this require a warm- hearted response from the public for people who are in genuine need.
JOURNALIST:
The NSW government have called for a joint state federal royal commission into the insurance industry. Would you support something along those lines?
PRIME MINISTER:
Well the NSW government is just trying to sort of politicise it.
JOURNALIST:
Prime Minister what did you think when you heard reports of the lavish parties and antics apparently of HIH in recent times, given what has happened?
PRIME MINISTER:
Well I don't have the freedom to pass comment on the behaviour of the company that apparently others have, but I don't think there's anything to be, there's nothing to be served by a prime minister getting into that sort of thing. This is a very serious matter and I want to make it very clear that if there's been any breach of the law the people responsible will be pursued and pursued very vigorously and the pursuer will have all the money it needs from the Government to make sure the pursuit is successful.
JOURNALIST:
. hardship cases start to see .
PRIME MINISTER:
Well as soon as we can negotiate an arrangement.
JOURNALIST:
How long do you think?
PRIME MINISTER:
Well Mr Hockey will be talking to companies tonight so we are on the job as soon as you let us go.
JOURNALIST:
Prime Minister just on another thing, the St Vincent de Paul report out today has come out very strongly saying the GST is a curse on the poor. Will there be anything in the budget to ease that burden?
PRIME MINISTER:
Well I won't agree with the St Vincent de Paul about, if that is what it has said, I haven't read the report. If that is what it has said I don't agree with it. And the best evidence that such a judgement is wrong is that the pension which is the main means of income support for poor people in Australia, has in percentage terms risen far more under this government, including the impact of the GST, than has the cost of living in the time that we have been in power. I mean there is just a straight statistical refutation of the claim that you say has been made about the society and I don't accept it.
JOURNALIST:
Mr Howard, the housing figures today seem to be quite positive. Do you think it is just a blip or do you think that it shows that the government has perhaps turned the corner?
PRIME MINISTER:
Well I thought the housing figures are fantastic and I believe they do indicate that the public has begun to respond to a combination of lower interest rates and also the doubling of the first home owners' grant for new homes. And that particular measure was a real shot in the arm to the housing industry. It was designed to be and whilst one must always be careful about one month's figures, they are very promising, they stack up with our expectations and they confirm the anecdotal evidence I've been getting from the industry. So, all over very good figures.
JOURNALIST:
Mr Howard in terms of the people that are effected what percentage would not be able to receive any relief from [inaudible]?
PRIME MINISTER:
I can't give you a percentage, I just have to say that we are going to focus our assistance on hardship cases and I can't hold out the prospect, in fact I make it clear that we can't stand behind every unmet claim on HIH. You cannot do that. The Budget cannot afford it, the community will not support a levy to fund it but what the community would expect the government to do out of the Budget if at all possible and we're certainly hopeful that that is the case, they would expect them to stand behind and meet genuine hardship cases, those criteria need to be established. I am not going to go into what the figures are. I am not going to try and hypothesise about what the categories may be. But claiming there are some real hardship cases we will want to help those people but there will be other people who are not in such necessitous circumstances and clearly we can't help them. I mean in the end no government can stand behind every corporation that fails. No government can afford to do that.
Thank you.
[ends]