As estimates of its potential losses mount, the collapse of HIH, Australia’s second largest insurer, continues to cause problems for the government, the insurance industry and numerous policy holders.
In an effort to satisfy the growing demand for an official inquiry, Prime Minister John Howard announced the establishment of Australia’s first Royal Commission in seven years to fully investigate the causes which led HIH to seek the appointment of a provisional liquidator last March.
The Commission would have full subpoena powers, and is expected to examine HIH’s financial documents, which were seized by regulators last Friday, as well as the role played by the Australian Prudential Regulation Authority, which has been widely accused of failing to adequately investigate HIH. It will also undoubtedly question Ray Williams, who founded HIH in 1968 and ran it until late last year, as the losses which caused the collapse occurred under his direction.
In another move aimed at helping policy holders left stranded by the liquidation filing, Howard’s center-right government announced plans to set up a special fund with an initial capital of A$500 million ($264 million) to assure payment to the Australian holders of policies covering salary maintenance, disability payments, personal injury and homeowners claims. Funds won’t be available to policyholders outside Australia or to reinsurers.
The plan, dubbed HIH Claims Support (HCS), will be government funded, but it will be administered by the insurers that have taken over portions of HIH’s business, including NRMA, QBE, and the Australian subsidiaries of Germany’s Allianz. Although they continue to service current policyholders, they have no agreed to assume pending claims.
Estimates of the amount of those claims and the losses HIH had already incurred when it filed for liquidation vary widely. KPMG, who is administering the company is expected to give a preliminary figure soon. When the troubles first surfaced HIH indicated potential losses of A$800 million ($422 million) mainly from ill-timed ventures into workers compensation in the U.S. and similar losses in the London market. KPMG now indicates that losses will exceed $3 billion ($1.58 billion) and could possibly reach A$4 billion ($2.11billion). Some analysts, however, have put the eventual figure at twice that.
A further controversy has arisen in the State of New South Wales, where the government has proposed taxing insurance premium payments in order to raise $36 million a year to help state residents affected by the HIH collapse. Insurers unanimously attacked the plan, especially the feature that would prohibit them from raising rates to pay the tax, thus passing the costs along to policyholders.
In the meantime an estimated 28,000 Australian HIH policyholders with outstanding claims, are still waiting for their money.
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