Federal Register of Legislation - Australian Government

Primary content

A Bill for an Act to provide for the imposition of a levy on general insurers
Administered by: Treasury
For authoritative information on the progress of bills and on amendments proposed to them, please see the House of Representatives Votes and Proceedings, and the Journals of the Senate as available on the Parliament House website.
Registered 16 Oct 2008
Introduced HR 15 Oct 2008
Table of contents.

2008

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

financial claims scheme (general insurers) levy bill 2008

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)

 


Table of contents

Glossary                                                                                                               1

General outline and financial impact................................................................ 3

Chapter 1           Levy on industry..................................................................... 5

 


The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

ADI

Authorised deposit-taking institution

APRA

Australian Prudential Regulation Authority


Financial Claims Scheme

The Financial Claims Scheme (General Insurers) Levy Bill (the Bill) provides for the imposition of a levy on general insurers in certain circumstances where the Financial Claims Scheme is activated in relation to the failure of a general insurer.

It is part of a package of three Bills introducing a Financial Claims Scheme and other measures to further enhance the stability of Australia’s financial system.  The other Bills in the package are the Financial Claims Scheme (ADIs) Levy Bill 2008, which provides for the imposition of a similar levy on authorised deposit‑taking institutions (ADIs), and the Financial System (Financial Claims Scheme and Other Measures) Bill 2008, which provides for the major features of the Financial Claims Scheme and other measures in the package.

The Financial Claims Scheme will allow eligible policyholders with an APRA‑regulated general insurer to have valid claims met in the event of the failure of a general insurer. 

APRA’s costs, in meeting entitlements under the scheme and in administering the scheme, will be met in the first instance by the Commonwealth.  As scheme administrator, APRA will initially seek to recover the costs of operating the Scheme, both in terms of the payouts to claimants and the administration costs, through the liquidation of the declared general insurer.

In the event that the assets of the general insurer are not sufficient to meet the costs of the Scheme and its administration, these remaining costs can be recouped by the imposition of a levy on industry.  For a levy to be imposed, a Regulation must first be made.

Date of effect:  Sections 1 and 2 and anything in the Act not mentioned in this paragraph commences on the day on which the Act receives the Royal Assent.  Sections 3 to 6 commence on the later of the start of the day on which the Act receives the Royal Assent and the commencement of Schedule 1 to the Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Act 2008.  However, these sections do not commence at all if Schedule 1 to that Act does not commence.

Proposal announcedThe Treasurer announced on 2 June 2008 that the Australian Government would introduce a package of measures to further enhance the stability of the Australian financial system, including establishing a Financial Claims Scheme.  The Treasurer’s announcement indicated that if APRA was unable to recover the full costs of the scheme in the liquidation, relevant financial institutions could be levied to recover the costs of the scheme.

Financial impactThere are no net costs of the package over time.  In the event of a failure, the significant up-front costs to the Commonwealth of the scheme can be recouped in the liquidation of the failed insurer, with any shortfall able to be met through the imposition of the levy provided for in the Bill.

Compliance cost impactLow.  This Bill will not have a significant compliance cost impact.

Regulation impact on business

ImpactThe levy arrangements for the Financial Claims Scheme will not have a significant regulatory impact on business or individuals.  Where the scheme is activated, the levy is able to help ensure that the advance provided by the Commonwealth will be fully recovered and there will be no net impact on taxpayers.

Do not remove section break.


Chapter 1    
Levy on industry

Comparison of key features of new law and current law

New law

Current law

Regulations may impose levies, following the activation of the Financial Claims Scheme in relation to the failure of a general insurer, on gross premiums received by a class of general insurers.

 

The Regulations also set out how the amount of levy is determined, subject to the levy amount not exceeding 5 per cent of the gross premiums of the general insurer.

 

The objective is that the total amount of levy equal the excess of the cost of the Financial Claims Scheme for the failed insurer over the amounts paid to APRA in the liquidation of the insurer.

 

Before Regulations imposing the levy are made, the Minister must be satisfied they will help achieve this objective.

 

Detailed explanation of new law

1.1                   APRA’s costs, both in meeting entitlements under the scheme in relation to a general insurer and in administering the Scheme, will be met in the first instance by the Commonwealth.  These costs will be recouped in the liquidation of the general insurer.  If the amounts received in liquidation are not sufficient to recover APRA costs, an industry levy will be imposed to recover any amounts outstanding to APRA.  A levy will not be imposed unless APRA’s costs in relation to the scheme exceed the amounts it receives through the liquidation.  

1.2                   The Bill defines APRA’s financial claims scheme costs for a general insurer.  These costs have three basic elements:  entitlements that policyholders have relating to the general insurer; APRA’s costs in administering the scheme, exercising and performing its powers and functions in relation to the insurer; and the costs of any borrowing APRA may make with the Finance Minister’s approval under section 54E of the Australian Prudential Regulation Authority Act 1998. [section 3].

1.3                   The levy is intended to raise funds equal to the excess of the costs of the Financial Claims Scheme over the sum of amounts paid to APRA by the insurer in connection with Division 3 of Part VC of the Insurance Act 1973 or in the winding up of the insurer [section 6].

1.4                   Where the Financial Claims Scheme has been activated in relation to a particular general insurer, Regulations may be made imposing a levy on the gross premiums received by a class of insurers in a financial year or (reflecting that individual general insurers are able to use an accounting period that differs from the financial year and to minimise compliance costs) other 12‑month accounting period [section 4].  For a levy to be imposed, Regulations must first be made.

1.5                   The Bill allows for the amount of the levy to be worked out in accordance with the Regulations [subsection 5(1)].

1.6                   The Regulations can set out how the amount of the levy is worked out and may prescribe different ways of doing this for general insurers in different classes.  The Regulations may, for example, specify that the levy is to be a flat percentage rate of gross premiums received or may specify other parameters such as a minimum or maximum levy amount.  To provide necessary flexibility the Regulations may also set out the methods for determining gross premiums for insurers in different classes to reflect the potential variations in accounting treatment. [section 5].

1.7                   Prescribing these matters in Regulations is intended to provide a degree of flexibility and more scope to tailor the levy arrangements to the particular circumstances in which a levy is imposed, including the state of the general insurance industry and the extent and nature of the failure.

1.8                   The Bill specifies that the class of insurers levied must exclude all general insurers in respect of which the scheme has been activated [section 4].

1.9                   The amount of levy cannot be more than 5 per cent of gross premiums received by a general insurer.  This helps limit the potential impact of a very large general insurance failure on levied general insurers [section 5].

1.10                Regulations imposing or affecting the amount of the levy can be made only after the Minister is satisfied that the Regulation will help achieve that objective [section 6].  This does not prevent the Minister also taking into consideration any other factors, such as the stability of the financial system, implications for risk‑taking or the efficiency of collection.

Application and transitional provisions

1.11                Sections 3 to 6 commence on the later of the start of the day on which the Act receives the Royal Assent and the commencement of Schedule 1 to the Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Act 2008.  However, these sections do not commence at all if Schedule 1 to that Act does not commence.

Do not remove section break.

Do not remove section break.