Australian Broadcasting Corporation


Broadcast: 03/05/2001

HIH collapse ramifications
Reporter: Alan Kohler

KERRY O'BRIEN: Six weeks after Australia's second biggest insurance company, HIH, was forced into liquidation, The full ramifications of the collapse are only just sinking in.

HIH policy holders all over the country are facing the shock of bouncing insurance cheques or the prospect of massive losses because they are suddenly uninsured.

Every day new cases of hardship are emerging -- pensioners who relied on HIH for their income, builders who can't work without cover, lawyers and doctors who face damages claims with no professional indemnity insurance.

And as the shock waves of the HIH collapse spread, the pressure is growing on the Federal Government and the insurance industry watchdog -- APRA -- to explain how it happened and what they plan to do about it.

Business and economics editor Alan Kohler reports.

IAN HOWE, ENGINEER: As a result of HIH collapsing, I'm effectively $75,000 out of pocket.

MARK HARDMAN, BUILDER: We're left holding the baby.

It's a very , very expensive one.

BRIAN WELCH, MASTER BUILDERS ASSOCIATION: The Government should have done something.

I'm going to be out of business very soon unless I get warranty insurance.

ALAN KOHLER: These people are united by a disaster.

They're three of the thousands of Australians affected by the collapse of the nation's second largest insurance company, HIH.

HIH was placed in liquidation in March, owing an estimated $800 million.

But that's just the creditors.

What's now emerging is the potential for billions of dollars in unpaid insurance claims, leaving many people across the country in serious hardship.

Ian Howe runs a small export business from his home, but became embroiled in a trade mark dispute: He was insured by HIH.

IAN HOWE: At the end of the day, the matter was to be settled out of court and according to the deed of settlement our insurance company was to pay that amount, which is the settlement cost, it's the claim, the amount of money being claimed for the costs by the other party.

HIH agreed to pay that amount, and advised us to sign that deed of settlement.

Which we did do.

ALAN KOHLER: That was a week before HIH collapsed.

The amount was $90,000, which, by the way, was entirely made up of lawyers costs.

No damages were payable in the settlement.

IAN HOWE: It's a shocking amount of money given the short space of time that was involved with these particular lawyers.

But it needs to be paid.

The only way we can conceivably meet that amount of money is to draw out our personal superannuation funds, which means that our aims at self-funded retirement are basically gone.

We have no other option at all.

I mean, we have received some advice to the effect that we should fold up and go bankrupt like some high profile barristers do.

So me that's very distasteful and in doing that we would lose everything we've worked for.

ALAN KOHLER: One of the most common problems caused by the collapse of HIH is in the building industry.

Where up to 20,000 builders Australia-wide are finding they can't do any work until they take out new warranty insurance.

MARK HARDMAN: Since HIH went bust I haven't been able to start any new work whatsoever.

What it's meant is that I've had to put a couple of the fellows off.

They're going to have to have to find something else to do until my warranty insurance is replaced.

I just have to fight on.

I don't know how long I can hold out.

I have overheads that are ticking over all the time, regardless of whether I'm making any money whatsoever.

BRIAN WELCH: In my experience I've not seen anything as devastating as the collapse of HIH.

The influence, the speed of it, is just taken everyone's breath away.

ALAN KOHLER: The building industry is now leading a growing chorus of business people calling for governments, state and Federal, to become involved.

BRIAN WELCH: I think that because of the size of this calamity and we're still understanding its full ramifications, that we really need to have governments work together.

I think the Federal Government could do something constructive about this and I think the State governments could do something constructive about this and we need bipartisan support.

KELVIN THOMSON, SHADOW ASSISTANT TREASURER: It is now the responsibility of the Federal Government to show leadership by calling a round table, getting together all the interested parties, the liquidator, the regulator, the insurance councils, the building industry representatives so we can see who the victims and the insurance industry can come up with a more comprehensive solution than it has done so far.

ALAN KOHLER: The Opposition and Government are agreed on two things -- that the collapse of HIH is a big problem but also that Federal taxpayers' money shouldn't be used to bail out those affects.

The Federal Minister responsible, Joe Hockey, came out this week and said that the responsibility basically lies with the State governments and the insurance industry.

In any case he says the Federal Government can't do anything until it knows the full extent of the problem.

It's true the insurance industry is governed by a Federal body -- Australian Prudential Regulatory Authority -- APRA.

And there are questions as to whether APRA should have acted on HIH before it did.

BRIAN WELCH: I think that APRA as it's charged to be the watch dog and should have taken steps sooner to prevent the collapse.

JOE HOCKEY, FINANCIAL SERVICES MINISTER: I think it's too early to tell whether APRA it should have acted earlier BECAUSE I think APRA's work is unfinished.

We want APRA to keep putting in place mechanisms that are going to protect policy holders.

And it's not for me to give a running commentary on whether APRA has acted properly or not.

KELVIN THOMSON: It's no good for Joe Hockey to sit on his hands in the meantime.

The liquidator is talking about six months to nine months to 12 month delays.

This is of no use to people whose salary continuation payment cheques have bounced, no value to people facing bankruptcy or the loss of their life savings as a result of legal actions against them which HIH is no longer covering.

JOE HOCKEY: We are very concerned for those hardship cases.

And we are working on a number of options that we would hope we'd be able to help those hardship cases.

But everyone needs to understand that APRA is a supervising regulator that the first line of call is the directors of the company.

They are the ones that said, as of 30 June last year, it has $1,000 million of net assets.

It continued to be solvent until February this year.

ALAN KOHLER: It's not just builders and companies with professional indemnity policies that have been affected by the collapse of HIH.

Many people have been left stranded with hospital bills like rugby player Vaughan Grant.

VAUGHAN GRANT, RUGBY PLAYER: In September '99, I was paralysed my arm playing rugby ,I was tackling someone in a Sydney suburban competition.

I expressed decided not to get private health insurance because I understood and realised that the Australian Rugby was insured by HIH.

So I always -- I was relying on HIH to cover me in the event I got injured.

ALAN KOHLER: As time goes on, more and more cases like Vaughan Grant's are emerging and the Government's head ache keeps getting worse.

VAUGHAN GRANT: If you're affected by the collapse, you face a long uphill battle with your injury.

There's a lot of people who are paraplegics and so on who aren't getting any money from HIH and the Government is really saying, "It's out of our hands," or putting the blame back on to the State.

ALAN KOHLER: Meanwhile bodies like Rugby Australia have to get on with looking after their players.

MATT CARROLL, RUGBY AUSTRALIA: We would like TO THINK THERE WOULD be some Governmental input.

Certainly HIH had an A class rating last year.

We didn't give it the A class rating.

So we were unaware that this was going to occur.

How long that would take before Government rises to the occasion that's up to them.

But we can't afford to wait around because we have some players in wheel chairs who need immediate help.

ALAN KOHLER: For the Government the collapse of HIH is one of those political problems that came out of left field and is difficult to control.

Now it's gathering momentum.

PETER BEATTIE, QUEENSLAND PREMIER: It is this Government's view that urgent Federal Government action is now required in consultation with the States to discuss the Commonwealth's responsibilities in maintaining the integrity of the insurance system.

JOE HOCKEY: And we're doing what  we can to help those people suffering hardship and we're looking at options as quickly as possible.

MARK HARDMAN: The GST was a hard one to get over and it stressed the cash flow.

It still is now and it's something that I have to continue to monitor.

Now with this HIH warranty collapse, it's thrown my cash flow into chaos and it is a hard battle to remain in business at the moment

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