Insurance in Australia

4.4 Insurance is a ‘risk transfer, loss-spreading arrangement’.^[1] Its purpose is to distribute risk through providing a mechanism by which individuals and organisations purchase, by way of a premium, insurance products to mitigate that risk. Risk is then transferred to the insurer which indemnifies them against future events that may cause loss.

4.5 There are three key categories of insurance in Australia: health, life and general insurance. The focus of this Inquiry is on life and general insurance. Life insurance encompasses a variety of products that provide payment upon death or injury. General insurance encompasses cover purchased by individuals—such as travel insurance; and that purchased by organisations—including product and public liability and professional indemnity insurance.

4.6 There are several key insurance concepts of relevance to the discussion in this chapter. These include:

• insurance premium—the amount paid by an insured in return for the insurer undertaking to cover the agreed risks or events;

• underwriting—the process by which individual applications for insurance are assessed; and

• reinsurance—a form of insurance for insurers that allows the original insurer to ‘distribute its potential liability by giving off parts of its risk to another insurer (the reinsurer) with the object of reducing the amount of its possible loss’.^[2]

Legislative and regulatory framework

4.7 At the Commonwealth level, the insurance industry is governed by two primary pieces of legislation—the Insurance Act 1973 (Cth) and the Insurance Contracts Act 1984 (Cth).^[3] Chapter 7 of the Corporations Act 2001 (Cth) governs the regulation of insurance intermediaries such as agents and brokers.

4.8 The general insurance industry in Australia is regulated by a prudential regulator and a corporate regulator. The prudential regulator is the Australian Prudential Regulation Authority (APRA), which is responsible for general administration of the Insurance Act.^[4] APRA has the authority to set prudential standards for the general insurance industry and has developed a detailed framework of prudential standards and practice guides. The corporate regulator is the Australian Securities and Investments Commission (ASIC), which is responsible for, among other things, the general administration of the Insurance Contracts Act, monitoring and promoting market integrity and consumer protection and licensing.^[5]

4.9 The Insurance Council of Australia (ICA) is the representative body of the general insurance industry in Australia. The ICA oversees the General Insurance Code of Practice—a self-regulatory code that binds all general insurers who are signatories to it.^[6] The Financial Services Council (FSC) is the industry association for the financial services sector, which includes the life insurance industry. Compliance with the FSC Code of Ethics and Code of Conduct is compulsory for all FSC members.^[7]

4.10 Another key legislative regime with bearing on the insurance industry is the Commonwealth anti-discrimination regime, under which there are a number of exemptions for insurance. The ADA provides that insurers may discriminate on the grounds of age in offering an insurance policy, or the terms or conditions upon which such a policy is offered, if certain conditions are satisfied.^[8] The conditions are satisfied if the discrimination is:

• based upon actuarial or statistical data on which it is reasonable for the discriminator to rely; and

• reasonable having regard to the matter of the data and other relevant factors; or

• in a case where no such actuarial or statistical data is available, and cannot reasonably be obtained, reasonable having regard to any other relevant factors.^[9]

4.11 Section 54 of the ADA provides power for the AHRC and its President to require the production of actuarial or statistical data where a person has acted in a way that would, apart from the above exemptions, be unlawful. However, much of the data relied upon by insurance companies in the underwriting and pricing processes is not publicly available.

4.12 As outlined in Chapter 1, the Australian Government is currently conducting a process to consolidate Commonwealth anti-discrimination legislation. In the course of the consolidation the Government is considering the exemption which may be invoked by insurers. Submissions from a number of stakeholders were received on this issue.^[10] The ALRC will consider any changes to the insurance exemption arising from the consolidation process following the release of the exposure draft legislation expected later in 2012. A number of questions about the exemption are raised in the second part of this chapter.

Insurance Reform Advisory Group

4.13 In addition to the legislative and regulatory structures outlined above, in April 2011, an IRAG was established. The purpose of IRAG is to bring together peak industry bodies, consumer and government representatives to exchange views ‘about issues in the insurance field that should be considered for reform—be it legislative change or changes to regulatory or industry practices’.^[11]

How does insurance affect mature age workforce participation?

4.14 In its submission to this Inquiry, Suncorp expressed the view that it ‘has not observed that age-based limits and premiums have any noticeable influence over workforce participation rates’.^[12] Suncorp went on to argue that:

in the unlikely event that the underwriting or pricing of insurance products does negatively influence workforce participation, Suncorp would contend that this influence is likely to be appropriate in the circumstances. ^[13]

4.15 It is recognised however, that ‘the extent to which age-based limitations and premiums influence mature age workforce participation will vary on the nature of each particular product’.^[14] Indeed, a number of other stakeholders have submitted that access to insurance poses difficulties for mature age workers. It was submitted that the imposition of age limits and the inclusion of age in the underwriting and pricing process, which may result in increased premiums, ‘act as a disincentive to employment and other productive work’.^[15]

4.16 The key barriers for mature age workers appear to arise in relation to income protection insurance, travel insurance and workplace insurance. Each of these and their effect on mature age participation in the workforce is discussed below.

Income protection insurance

4.17 Income protection insurance (otherwise known as personal accident, sickness and disability insurance) protects the insured in the event of being unable to work due to sickness or injury (the ‘prescribed risk’). The benefit is provided by way of regular periodic payments—a wage substitute.

4.18 Overall demand for income protection insurance in Australia is ‘low across all age groups’ and 69% of Australians choose not to take out income protection insurance.^[16] However, income protection insurance is of particular importance to specific groups of workers such as sole traders, where workers’ compensation is not available.

4.19 Significantly, with some exceptions, income protection insurance is unavailable to persons aged over 65.^[17] This leaves those persons who choose to continue to work after that age unable to cover themselves in this way in the event of illness or injury. In addition, some income protection policies have a limited benefit period and only provide a wage subsidy for limited time spent out of the workforce (generally two or five years).^[18]

4.20 These limitations have implications for mature age workers who choose to work past aged 65. These also affect those who are forced to exit the workforce and upon the expiry of their benefit period must attempt to re-enter employment, particularly in light of discrimination faced by people seeking employment from the age of 45.^[19] This, compounded by illness or injury and a substantial period out of the workforce, presents a barrier to the workforce participation of mature age workers.

4.21 In addition, premiums for cover by income protection policies generally increase with age. These gaps in the availability and affordability of income protection insurance for workers aged over 65 may mean workers must rely on retirement savings or the Age Pension for any illness or injury sustained through work. This may act as a disincentive to workforce participation. It may also discourage mature age workers from embarking on self-employed enterprises as a transitional phase to retirement.

Travel insurance

4.22 Travel insurance provides for the payment of agreed sums to cover losses or expenses, including medical expenses, incurred in the course of travel. Age limitations and, in certain circumstances, higher insurance premiums, are placed on some travel insurance policies. Such limitations and premiums differ according to product and insurer,^[20] however where they exist may exclude insurance for mature age persons. This is reinforced by the findings of a 2012 survey by National Seniors Australia and COTA Australia (COTA) on ageism in travel insurance, which found that:

• almost a third of respondents (32%) reported that they have had to pay higher travel insurance premiums because of their age;

• five per cent of respondents reported that they had been refused travel insurance because of their age; and

• almost two-thirds of respondents (63%) have difficulty in understanding how age restrictions operate after reading through information provided by insurers in Product Disclosure Statements, brochures and websites.^[21]

4.23 The higher cost, or unavailability, of travel insurance for these mature age persons may act as a barrier to work where a person is required to travel as part of his or her employment or wishes to volunteer, for example overseas or interstate.

4.24 Travel insurance for mature age persons is an issue specifically being considered by IRAG.^[22]

Insurance and volunteers

4.25 Personal accident and public liability insurance is generally taken out by organisations that have volunteers. The ALRC has heard that age limitations and age-related premiums on insurance can restrict volunteering opportunities for mature age people.^[23] This is highlighted by the following case study:

In one case, a group of retired workers in a small country town offered to assist the state government to keep their railway station open by volunteering to build up the existing platform to the required height. However, their offer of voluntary assistance was refused because, due to their age, they could not be covered by the government’s insurance provisions.^[24]

4.26 The Tasmanian Anti-Discrimination Commission has released an issues paper, as part of its current inquiry into volunteers, insurance and age discrimination, in which it notes that:

community organisations have argued that age discrimination in the provision of volunteer insurance can have a negative impact on the community, volunteer organisations, and individuals, by restricting volunteer opportunities for younger and older people.^[25]

4.27 The impact of this is two-fold: it curtails the ability of organisations to benefit from the skills and experience of mature age volunteers; and acts as a barrier to volunteering and remaining engaged in productive work.

4.28 While the ICA recognised that some age limits in available insurance cover remain, it highlighted that

Volunteering Australia reports that access to ‘affordable insurance cover has improved over the past decade and there is evidence that access to insurance is not a significant barrier to volunteerism in formal not-for-profit agencies’.^[26]

4.29 However, in the same report Volunteering Australia concluded that

the changing nature of volunteering and the trend towards less formal, episodic and more mobile volunteer workforce may increasingly expose volunteers to situations where they find themselves unprotected by legislation or insurance coverage.^[27]

4.30 According to the ICA, the ‘changing nature and diversity of volunteering activities can present challenges to the assessment of the relevant level of risk to be covered’ but that there are a variety of volunteer insurance products available.^[28] For example, Volunteering Australia and AON have developed a Volunteers Vital Pack—a package of insurance to cover volunteer organisations. However, these products include some age-related limitations.^[29]

4.31 The ICA acknowledged that

surveys have shown many volunteer organisations find insurance complex and there is a widespread lack of awareness of the level of insurance cover held by the volunteer organisation.^[30]

4.32 Volunteering Australia has also called for

greater harmonisation of Commonwealth and State legislation to ensure that all volunteers, regardless of the circumstances of their volunteer effort, enjoy universal protection against loss.^[31]

4.33 The ALRC will consider any recommendations made by the Tasmanian Anti-Discrimination Commission in this area. However, at this stage the ALRC considers the most appropriate approach to insurance issues concerning volunteers is the systemic one proposed by the ALRC involving IRAG and the insurance exemption.