Question:

Describe about the Corporate Governance Oversight and Regulation in Australia.

Answer:

The fall of HIH insurance had grave ramifications on the policyholders as the failure left them vulnerable as they were left uninsured against financial loss. Further, it led to the loss of trust in the insurance industry in the country. Following this, the Insurance Council of Australia (ICA) recommended provision of industry expertise and resources to operate a scheme to support the policyholders. Further, ICA suggested the established plan be financed through an introduction of a 1% tax on all general insurance policies issued in Australia. However, the levy proposal did not take effect but was however substituted by a reduction by the Australian government on the taxes charged on insurance policies.

The HIH shareholder and investment partners are likely to experience massive losses on their investment. The extent of losses will be determined over time when the company if fully liquidated. On the other hand, the over 1000 employees of HIH insurance faced a bleak future and remain the forgotten victims.

HIH was an insurance giant in the industry and hence contributed to the growth of the economy through taxes paid to the federal government of Australia. The federal government formed the Royal Commission to investigate the collapse of HIH insurance which shook the market.  Justice Neville John Owen, the chairperson of the commission, saw the establishment of a new non-profit firm named as HCS to facilitate delivery of the federal government support platform for the insurance policyholders affected.

The collapse of HIH instigated an extensive management investigation. Ray Williams the former Chief executive officer (CEO) was charged with breach of the Australia’s Corporation Act between the years of 1998 to 2000. The Australian Securities and Investment Commission (ASIC) brought accusations of irresponsibility and failure to exercise his powers as the company’s director actively. Ray dominated the operations given there was no finance director on the board hence giving Ray Williams the opportunity to exploit the management and accounting information to suit his personal interest rather than prioritize on maximizing the shareholder’s wealth. Ray was found guilty on all criminal charges after he pleaded guilty.

Also, criminal charges were brought forward against the William Howard, a former general manager after being linked to activities that led to the collapse of the Giant insurer.  Howard was found guilty and sentenced to three years imprisonment, but the jail term was suspended following his agreement to aid ASIC to investigate the fall of HIH Insurance group. Criminal charges remain pending against other three HIH managers.  ASIC is mandated to ensure companies and individuals comply with share market conduct and regulations. ASIC was funded to a tune of $5 Million to probe HIH failure.

The collapse of HIH insurance speeded up legislative reforms in the insurance industry in Australia. The Australian Prudential Regulation Authority (APRA) increased the minimum entry level capital required. Further, the APRA was reformed to enable it to derive prudential ideals for general insurance. The Royal Commission exonerated APRA from the failure of HIH insurance but suggested an aggressive method to its prudential supervision of general insurers allowing the prudential regime to accommodate market development efficiently.

The Australian government amended the Trade practice Act of 1974 to match reforms in the state and territory tort laws. This move was aimed at minimizing the insurance premiums and increase the availability of insurance following HIH collapse. In May 2002, the Australian Competition and Consumer Commission (ACCC) was allowed to monitor the Australian domestic insurance market. ACCC was tasked with tracking the cost and premium in public liability and professional indemnity insurance after every six months in preceding years.

References

Parliament of New South Wales, 2003. Parliament of New South Wales. [Online]
Available at: http://23.101.218.132/Prod/parlment/hansart.nsf/V3Key/LC20010327034?open&refNavID=HA8_1
[Accessed 2nd April 2017].

ASIC, 2014. ASIC; Australian Securities & Investment Commision. [Online]
Available at: http://asic.gov.au/regulatory-resources/corporate-governance/
[Accessed 2nd May 2017].

Autralian Government; The Treasury, 2015. Autralian Government; The Treasury. [Online]
Available at: http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/Economic-Roundup-Issue-1/HTML/article-3/2-The-rise-and-fall-of-HIH-Insurance-Group
[Accessed 2nd May 2017].

Parliament of Australia, 2017. Parliament of Australia. [Online]
Available at: http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Publications_Archive/archive/hihinsurance
[Accessed 2nd May 2017].