Motions

Statutory Authorities Review Committee

Adjourned debate on motion of Hon. R.I. Lucas:

That the Statutory Authorities Review Committee, as part of its current inquiry into the Motor Accident Commission, ensures that it investigates current regulatory arrangements and any proposed changes to those regulatory arrangements.

(Continued from 28 October 2015.)

The Hon. J.M. GAZZOLA (16:28): The government opposes this private members motion. The Hon. Rob Lucas is simply attempting to frustrate the CTP market reform process by seeking to have the Compulsory Third Party Insurance Regulation Bill 2015 referred to the Statutory Authorities Review Committee. Here the bill will be delayed until the committee reports, which will likely be some time in the second half of 2016, leading to a sub-optimal regulatory framework for CTP insurance. The Hon. Rob Lucas is placing motorists and the injured at a severe disadvantage. PricewaterhouseCoopers suggested that the CTP regulator should be:

an independent financial and insurance services specialist to ensure a fair and affordable CTP scheme and consumer protections for motorists;

provide the insurance industry with confidence that governance will be objective, fair and headed by a specialist with the capacity and experience to engage with their prudential regulator, the Australian Prudential Regulation Authority;

be able to liaise with APRA to manage insurer compliance as occurs in interstate private sector CTP models, to ensure APRA functions are not duplicated; and

to maximise interest from credible insurers in entering the new South Australian CTP insurance market.

The optimal compulsory third party insurance regulatory model has been developed specifically for the South Australian market which will ensure a strong, sustainable, competitive and viable CTP insurance market. Regulation of CTP insurance is financial services regulation as opposed to general utilities regulation—ESCOSA. As such, the skill sets do not greatly overlap and so there is very little ability to leverage economies of scale and scope with ESCOSA. Discussions with the insurance industry and other financial services regulators confirm that they much prefer to deal with other independent financial services regulators and not a general utilities regulator. This is non-trivial and will materially impact the effectiveness of the regulator.

The three other private/competitive CTP insurance markets have an independent CTP insurance regulator and do not combine this with the general utilities regulator. SA should look similar, given the above and given that some or all of the CTP insurers will likely be the same as those in the other markets. The regulatory model is enhanced by locking in for three years CPI-like premium increases and, in year 4, ensuring price control is managed through a premium ceiling and a premium floor arrangement which will be the responsibility of the CTP regulator.

A sustainable competitive market will be achieved with three to five insurers and a CTP insurance market allocation of 15 per cent to 35 per cent per insurer. This will ensure that in year 4 (post the transitional period) a robust CTP insurance market is established to maintain ongoing price competition for motorists. All elements of the model must be viewed together when determining its strength, including the three-year CPI-like increases during the transitional period, the presence of a strong independent CTP regulator, and a sustainable competitive market in year 4 to ensure price competition is maintained.

The fundamental purpose of the bill is to establish an independent statutory CTP regulator who can provide robust regulation by discharging the functions set out in section 5 of the bill. This is considered to be the optimal regulatory model. The contracts to be entered into between the government and the approved insurers, which will have statutory standing under section 101(4) and section 101(8) of the Motor Vehicles Act 1959, reflect these functions. If the bill does not pass the contracts will still require the insurer under contract law and by force of section 101(4) of the Motor Vehicles Act 1959 to comply with a regulatory regime set out in the contracts in the same terms as provided for in the bill.

The Hon. Rob Lucas seeks to frustrate the CTP market reform process but he cannot stop it. Market reform will happen whether this motion succeeds or not. All he will succeed in doing is disadvantaging South Australian motorists by forcing upon them a suboptimal regulatory framework that flies in the face of expert advice received from the government's independent financial advisers. I urge the council to defeat this motion and focus on the real issue which is sensible debate around the Compulsory Third Party Insurance Regulation Bill 2015.

The Hon. R.I. LUCAS (16:33): I rise to close the debate, and thank those members who contributed to the debate. This issue has been debated concurrently in relation to this particular motion and the second reading debate on the government's CTP regulator legislation, so I will not repeat the arguments that have been put forward by myself and other members in the second reading debate of that particular legislation.

Just summarising the bottom line—and it has not been disputed by the Hon. Mr Gazzola, who has put the government's position—and that is whatever the Legislative Council does in relation to the bill before the parliament the government will conclude the privatisation of the Motor Accident Commission. Indeed, in the briefings that we were given, we were advised that there will be a decision on the successful tenderers or competitors in the private insurance market announced prior to Christmas this year. The reason for that early announcement, so we were told, was that the private sector operators would need about six months to gear up to be able to take on customers from July of next year.

The position is that the decision of the council to ask the Statutory Authorities Review Committee which is already looking at the privatisation of the MAC to sensibly have a look at what the appropriate regulatory environment should be for a private competitive market makes a lot of sense, clearly. It is not going to stop the government from proceeding, but what it can do is have a look at what the appropriate regulatory environment should be. It can have a look at the regulatory environment that exists in a couple of the other states that have private and competitive CTP markets and see whether or not the proposed regulatory environment that the government has outlined in its bill is the best regulatory environment to proceed with.

We would hope that the Statutory Authorities Review Committee could make some recommendations. It may well be that it looks at the government bill and says that it cannot be improved upon and that no changes are recommended, but it is also possible that the Statutory Authorities Review Committee might well say, 'We've had a look at what occurs in a couple of the other states, and if the government is going to proceed with the private market, it is better probably better if you amend the government's bill with some additional safeguards for consumers.'

I have raised in particular the question as to why the government is removing from the regulatory environment a requirement for fair and reasonable premium increases. It has always existed here; why would the government be removing that from the independent regulatory environment to proceed in the future? The committee should take evidence on that as to the reasons why we should remove that and perhaps arguments against the removal of that. There are other aspects of the government's proposed regulatory environment which deserve close consideration. For those reasons, we believe it makes sense for the committee to slightly broaden its inquiry to ensure it looks at the regulatory environment. We urge members to support the motion.

Motion carried.