Insurance Regulations (Amendment) 1996 No. 45
EXPLANATORY STATEMENT
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.
Overview
The Insurance Regulations (Amendment) 1996 No. 45, issued under the authority of the Treasurer, amends the Insurance Act 1973 to adjust the premium limit for Section 37 companies, which are entities that provide insurance to their members, employees, or persons in specific trades, industries, or professions. This legislative amendment responds to the growth in business transacted by these entities, and the need to update the premium limit that originally stood at $750,000 per annum. The updated limit, set at $1.5 million, aims to accommodate the evolving scale of operations without introducing additional prudential supervisory risks or adverse effects on market competition. The primary objective of this legislation is to facilitate the operation of self-insurance arrangements for groups that share common interests and face challenges in securing affordable insurance through conventional means.
Scope and Application
The Insurance Regulations (Amendment) 1996 No. 45 pertains to the Insurance Act 1973, specifically addressing the operations of Section 37 companies that provide insurance to their members, their members' employees, or persons engaged in a specific trade, industry, or profession. These companies are eligible for exemption from certain regulatory provisions if they operate on a small scale, meaning their gross premiums do not exceed the statutory limit. As of the amendment, this limit is set at $1.5 million per annum, up from $750,000, reflecting changes due to the passage of time and increased business volumes. The exemption applies to bodies corporate that establish self-insurance arrangements, often because traditional commercial insurance markets are either unavailable or unaffordable for these groups. Such companies are subject to specific conditions and limitations to ensure solvency and regulatory compliance, including restrictions on the types of insurance they can offer and on their exposure to individual risks. These companies benefit from less stringent capitalisation, solvency, reinsurance, and reporting requirements compared to open market insurers, justified by their limited market reach and specific membership criteria. The amendment was made to align the statutory limit with current economic conditions without introducing additional supervisory risks or competitive disadvantages in the insurance market.
Key Provisions
The primary operative section of the Insurance Regulations (Amendment) 1996 No. 45 is section 37, which amends the Insurance Act 1973. Section 37 allows the Insurance and Superannuation Commissioner to exempt certain bodies corporate from certain provisions of the Act. These exemptions apply to bodies corporate that provide insurance cover to their members, employees of their members, or persons engaged in a particular trade, industry, or profession. The exemption is contingent on the scale of operation of the enterprise being small, specifically where gross premiums accepted by the body corporate are less than a statutory amount, currently set at $1.5 million per annum. This amendment raises the previous limit of $750,000 to better accommodate the growth and needs of eligible insurers.
The Act imposes several obligations and requirements on entities granted exemptions under section 37. Firstly, these entities must operate within the confines of their approved scope, which includes providing cover to their members, employees, or persons engaged in specific trades, industries, or professions. They must also adhere to the scale of operation limitation, ensuring their gross premiums do not exceed the prescribed amount. Furthermore, section 37 companies are subject to specific conditions that limit their activities, such as prohibiting them from offering cover in liability classes of business and imposing other limitations designed to preserve solvency. These conditions may include restrictions on maximum allowable exposure to any one risk or confining activities to one specified class of insurance.
Failure to comply with the requirements and obligations set out in the Insurance Act 1973 and the amended regulations can lead to various civil and criminal consequences. For instance, offering insurance products on the open market to the general public without the requisite authorisation can result in serious penalties. Such breaches may attract fines, imprisonment, or both, depending on the severity and intent of the violation. The specific penalties are not detailed in the explanatory statement, but they are generally severe enough to deter non-compliance with the regulatory framework designed to ensure the stability and integrity of the insurance market.
In summary, section 37 of the Insurance Act 1973, as amended by the Insurance Regulations (Amendment) 1996 No. 45, provides exemptions to certain bodies corporate from specific provisions of the Act, provided they meet the scale of operation criteria. These exemptions come with stringent conditions to ensure that the entities operate within safe limits and do not pose a risk to the broader insurance market. Non-compliance with these provisions can lead to significant civil and criminal penalties, reinforcing the importance of adhering to the regulatory requirements.