Commonwealth Numbered Regulations - Explanatory Statements

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INSURANCE REGULATIONS (AMENDMENT) 1996 NO. 45

Statutory Rules 1996 No. 45

Issued by the Authority of the Treasurer

Insurance Act 1973

Insurance Regulations (Amendment)

Section 132 of the Insurance Act 1973 (the Act) provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters that are required or permitted by this Act to be prescribed, or are necessary or convenient to be prescribed, for carrying out or giving effect to the Act.

The Legislation

S.37 allows the Insurance and Superannuation Commissioner to exempt from certain provisions of the Act bodies corporate which provide cover to:

*       their members;

*       employees of their members; or

*       persons engaged in a particular trade, industry or profession.

The exemption may be granted where the scale of operation of an enterprise is small (i.e. where gross premiums accepted by the body corporate is less than the statutory amount - currently $750,000 per annum).

The purpose of the legislation

The main purpose of S.37 companies is to allow groups of persons to establish what could be loosely regarded as self-insurance arrangements.

These persons must share certain common interests and, typically, have difficulty in finding affordable insurance cover in commercial insurance markets. Groups currently operating approved schemes include professional associations of barristers and dentists, taxi owners and members of the Australian Dried Fruit Association.

Limitations on activities

The activities of S.37 companies are limited by general and specific conditions placed on their authorisation to do business. For example, no S.37 company may offer cover in the liability classes of business and each company is subject to other specific limitations intended to preserve their solvency (e.g. maximum allowable exposure to any one risk, or confining activities to only one specified class of insurance).

Nature of the concessions

The concessions enjoyed by S.37 companies vary but may include less stringent capitalisation, solvency, reinsurance or reporting requirements than those applying to open market insurers. These concessions are justifiable because S.37 companies are effectively self insurance arrangements and cannot offer insurance products on the open market to the general public.

History

Upon enactment in 1973, subsection 37(1) provided a statutory premium limit of $200,000 for eligible companies. That was subsequently amended to $500,000 in 1984 and then to $750,000 in 1991. The last adjustment coincided with the introduction of a new provision, subsection 37(1A), which provided for higher amounts to be fixed by regulation.

Purpose of the amendment

The passage of time since the section was last amended, and the growth in business transacted by eligible insurers, have made it appropriate to increase the limit to $1.5 million. The increased limit introduces no additional prudential supervisory risk and no adverse effects on competition in the insurance market.