The Insurance Council wants to impose a 1% levy on all insurance policies to pay the claims of HIH policyholders. The plan was announced by ICA last night after more than a month of closed-door meetings. The levy could raise as much as $100 million.

The rescue plan has received an enthusiastic reception from the intermediaries, with NIBA Chief Executive Noel Pettersen pledging support from brokers. “It’s in everyone’s interest to get behind this effort,” he said. “We have to rebuild confidence in the industry.”

The rescue plan was first confirmed by sacked NRMA CEO Eric Dodd on Channel 9’s Business Sunday program. It is the culmination of what ICA Executive Director Alan Mason called “an exhaustive round” of meetings since HIH went into provisional liquidation on March 15. “This issue has involved a great deal of time from all our board members and a lot of other senior people,” he said.

Now comes the hard bit: selling the plan to state governments, which the insurers insist must do their bit to minimise the impact on policyholders by cutting hidden taxes like stamp duty and fire service levies. The ICA plan pre-empts any Federal or state government action and may force the states to agree they have some spare cash after all – the millions of dollars skimmed off insurance policies.

New ICA President Raymond Jones made the insurers’ insistence on government involvement very clear, saying the HIH claims crisis is “a community issue that has to be dealt with by the community”. He said the involvement of governments is necessary because “ordinary policyholders should not carry the full burden.”

The plan is a clever move for the insurers, who need to restore confidence in the industry and are more likely to attract support with swift, bold action. Financial Services & Regulation Minister Joe Hockey, who admitted last week that the Government can’t make any decisions on relief until the size of the problem is known, was briefed on the plan by ICA yesterday afternoon. 

State governments may find the insurers’ plan hard to resist. It would solve the problem quickly and painlessly, and would also prevent them taking their own relief action, which would have involved even more levies on premiums. It’s understood the industry’s levy would be imposed at varying rates until all claims are satisfied, no matter how long that takes. ICA has also offered to set up a corporation to administer the funds or turn the operation over to a Federal Government body.

The industry plan says the levy would help “private individuals as policyholders; small business policyholders (as defined in the FSRB; and third-party claimants (individuals or small businesses only) against policies held by private individuals or small business. It will apply only to permanent residents.

It would exclude “all compulsory insurance schemes with the existing capacity to cover losses by means of a levy mechanism”, effectively forcing the states to make their own arrangements for workers’ comp and CTP claims. It would also exclude former HIH business already covered by Allianz, QBE and NRMA. Claims after April 1 this year also won’t be covered, because ICA says people should have arranged an alternative insurer by then. Inwards reinsurance is also on the exempt list.

Mr Jones agreed that deciding who should be included in the aid list is “very difficult”, and invited the Government to help make such decisions “on behalf of the community”.

And lastly, ICA called on the Federal Government to amend the Corporations Law, so future receivers of distressed companies can “consider hardship payments”.

The next move is for the politicians.