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Legislative Assembly for the ACT: 2000 Week 6 Hansard (25 May) . . Page.. 1767 ..

MR HUMPHRIES (continuing):

The establishment of ACTIC is the next step in providing a sound basis for the insurance and management of the risks of the territory. The risks faced by the territory include not only those of any large organisation, such as property loss or damage, but also the significant areas of public liability and medical negligence.

Prior to 1997, the territory could be described as a non-insurer. There was almost no insurance or funding for the majority of the activities undertaken by departments and authorities of government. When payment was required to meet court judgments or settlements, the amounts had to be found from the budget for that year, even if the incident had occurred many years before. The unpredictable cash flow requirement had the potential to place considerable stress on the territory budget in any given year.

The first step in moving away from the position of a non-insurer was to take out from 1 July 1997 what is called catastrophe insurance. This type of insurance protected the territory from the impact of very large claims but did not insure against smaller claims or provide funding to meet those claims.

The next step was taken from 1 July 1998. From that date, all budget-funded agencies and most statutory authorities were required to pay a risk-based premium levy into a centrally managed fund. Territory-owned corporations are not part of the arrangements and have continued their separate purchase of commercial insurance. Individual agencies were still required to meet the first part of each claim through payment of an excess or deductible. The central fund was designed to meet the remaining amount of most claims. The catastrophe insurance was kept in place to protect the fund from large claims.

The establishment of a statutory authority is the next step in the development of the arrangements for the management and financing of the insurable risks of the territory. The existing arrangements suffer from a number of constraints, centred on the fact that the territory cannot directly access reinsurers or issue insurance policies because it is not an insurance company.

By dealing directly with reinsurers, the territory will be able to purchase reinsurance on more flexible, stable and favourable terms. There would be no change in the current practice whereby only highly-rated companies are selected for the insurance program. The current inability to issue an insurance policy can be an impediment in the negotiation of finance or operating leases for such assets as the government's motor vehicle fleet or buses.

The Insurance Corporation Bill 2000 responds to these restraints in the same way as other governments and large private companies, that is, by setting up what is known as a captive insurer. A captive insurance company is one set up by an organisation to insure its own risks. South Australia, Victoria and Western Australia have successfully established captive insurers.

In the ACT context, ACTIC will provide for the self-insurance of the territory's own risks. It will not sell or issue insurance policies to the public. The establishment of ACTIC will not add to the territory's risk exposure. It is a means of better managing and financing the territory's risks. The proposed arrangements will continue to provide financial incentives and expertise to assist agencies to focus on risk management.

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