Three Pillars of Insurance

Jason Gordon © Jason Gordon

This presentation has been prepared for the 2016 Financial Services Forum.

The Institute Council wishes it to be understood that opinions put forward

herein are not necessarily those of the Institute and the Council is not responsible for those opinions.

Three Pillars of Insurance Coverage LEGISLATIVE MANDATE / PROFESSIONAL COMPULSION

• Professional

Indemnity Medical

Supplement Supply

• Terrorism

Reinsurance on Commercial Property

• Workers Compensation

Government Mandate

Supplement Demand

• Compulsory

Third Party • Private Health

Insurance

• Aviation Insurance

VOLUNTARY

Professional Compulsion

• Life Insurance

• Home & Contents

• Travel Insurance

• Public Health Insurance Medical

Benefits Hospital

Cover

UNIVERSAL

Three Pillars of Insurance Coverage LEGISLATIVE MANDATE / PROFESSIONAL COMPULSION

• Professional

Indemnity Medical

Government Mandate

VOLUNTARY

Professional Compulsion

• Life Insurance

• Home & Contents

• Travel Insurance

• Public Health Insurance Medical

Benefits Hospital

Cover

UNIVERSAL

Highest Distribution Risk

Access

Supplement Supply

• Terrorism

Reinsurance on Commercial Property

• Workers Compensation

Supplement Demand

• Compulsory

Third Party • Private Health

Insurance

• Aviation Insurance

Insurance as a Public Good “A public good is a product/service that one individual can consume without reducing its availability to another individual and from which no one is excluded”

For example national defence, lender of last resort Impossible to charge a price for a public good

Three Pillars of Insurance Coverage LEGISLATIVE MANDATE / PROFESSIONAL COMPULSION

Government Mandate

VOLUNTARY

• Public Health Insurance Medical

Benefits Hospital

Cover

UNIVERSAL

Supplement Supply

• Terrorism

Reinsurance on Commercial Property

• Workers Compensation

History of Health Insurance Principles emphasised in second reading of Medibank Legislation 1973

– Social Equity – Universal Coverage – Cost Efficiency – Freedom of choice and flexibility

“It (Medibank) is indeed a program which must cause this parliament to decide whether health care is to be a privilege to be purchased or a right to be enjoyed equally by every Australian.”

History of Health Insurance Universal Hospital Cover • Queensland 1944 • Tasmania 1937 – 1952

‘Universal’ Medical Benefits • National Health & Pension Insurance Bill 1938 ‘our main immediate task as a government represents “defence” in a twofold sense – the building up of our national defence against possible aggression – and the building up of the defences of the individual Australian family against the unexpected emergencies of life.’

Health Insurance Timeline 1901-1972

Federation 1901

WWI 1914-18

Great Depression 1929

National Health Bill 1938

Hospital Benefits Act 1945

Pharmaceutical Benefits Act 1944 Referendum

s51(xxiiiA) 1946

Pharmaceutical Benefits Act 1948

National Health Services Act 1948

Voluntary Insurance 1952 National Health

Services Act 1953

Liberal Government 1949 - 1972

Labor Government 1941 - 1949

Hospital Benefits Scheme 1952

History of Health Insurance Voluntary System • Nimmo Committee 1969

Operation of the health insurance scheme is unnecessarily complex and beyond comprehension of many;

Benefits received by contributors are frequently much less than the cost of hospital and medical treatment

Contributions have increased to such an extend to be beyond the capacity of some members of the community and involve considerable hardship for others

An unduly high proportion of the contributions is absorbed in operating expenses

The level of reserves held by some organisations is unnecessarily high. • Committee flirted with universal coverage, only within a voluntary

scheme

Health Insurance Timeline 1968-1975

Federal Election 1969 Federal

Election 1972

Legislation Defeated in Senate December 1973

Medical Fees Tribunal 1973

TAS / SA 1 July 1975 Whitlam’s

National Health Scheme 1968

The Mason Inquiry 1972

Legislation Defeated in Senate April 1974

Federal Election May 1974

Joint Sitting of Parliament 6/7 August 1974

Legislation Defeated in Senate July 1974

WA VIC August 1975

NSW October 1975

QLD September 1975

Dismissal November 1975

Terrorism Coverage Terrorism Insurance Bill 2002: Explanatory Memorandum ‘… financiers and investors face uncertainty that could result in adverse economic circumstances, delaying commencement of investment projects…’ ‘The development of the Scheme followed calls from the community for the Government to intervene in an area of clear market failure …’ ‘The compulsory application of the Bill to all eligible insurance contracts is essential to allow accumulation of a credible funds pool within a reasonable period. Universal terrorism insurance is also designed to avoid problems of undiversified risks…and uncertainty as to who will be eligible for compensation in the event of a terrorist act.’ ‘The Government’s objective is to operate the Scheme only while terrorism insurance cover is unavailable commercially on reasonable terms.’

Terrorism Coverage Terrorism Insurance Bill 2002 The Government decided that any intervention would need to be consistent with: • the need to maintain, to the greatest extent possible, private sector

involvement; • ensuring that risk transferred to the Commonwealth is appropriately

priced and that the Commonwealth is compensated by those benefiting from the assistance;

• allowing the re–emergence of the commercial markets for terrorism risk cover; and

• global solutions.

Three Pillars of Insurance Coverage LEGISLATIVE MANDATE / PROFESSIONAL COMPULSION

• Professional

Indemnity Medical

Supplement Supply

• Terrorism

Reinsurance on Commercial Property

• Workers Compensation

Government Mandate

Supplement Demand

• Compulsory

Third Party • Private Health

Insurance

• Aviation Insurance

VOLUNTARY

Professional Compulsion

• Life Insurance

• Home & Contents

• Travel Insurance

• Public Health Insurance Medical

Benefits Hospital

Cover

UNIVERSAL

Three Pillars of Insurance Coverage Longer Term Trends ‘Welfare State’ Deregulation and ‘free market liberalism’ Economies of Scale

Planning Education

Population Pyramid Technological Capability (e.g. administration)

Taxation and Representation

Taxation and Representation

Three Pillars of Insurance Coverage LEGISLATIVE MANDATE / PROFESSIONAL COMPULSION

• Rule of Law

/ Litigious Society

Supplement Supply

• Market Failure • Contract

Externalities • Economic

Activity • Vested Interest

Government Mandate

Supplement Demand

• Contract

Externalities • Vested Interest • Long Term

Industry Stability

VOLUNTARY

Professional Compulsion

• Lack of Externalities

• Fluid view of ‘Equity’

• Relevance (e.g. workers compensation)

UNIVERSAL

• Market Failure • Economic

Activity • History • Political Capital • Technological

Capability • Vested Interest

History of Health Insurance

History of Health Insurance

History of Health Insurance