The HIH collapse is approaching the proportions of a national disaster and has consequently become a political football. Last night the Federal Government announced a plan to help policyholders left in financial hardship. Victoria joined NSW in deciding to do only as much as they had to, while demanding Canberra does much more.

The decision to move as early as this, before the provisional liquidator has reported, wasn’t expected. Late last week Financial Services and Regulation Minister Joe Hockey was pushing the official line that the Government couldn’t get involved until the liquidator could tell it the depth of the hole.

What has appeared to tip that argument on its side is the grim acceptance of the fact that the liquidator is having a hard time adding it all up. The latest estimates now top $4 billion. The Government simply couldn’t wait for the states to stop squabbling over the Insurance Council’s 1% levy plan, which also called on them to contribute through their massive tax on policies.

There is an overwhelming need for someone to do something. There are thousands of distressed claimants and many stalled industries. The insurance industry has taken the business it can and has refused to buy old HIH business at HIH prices. Some industries and professions are paying much more, and the extra cost will be passed on. Others have been unable to obtain cover to this point. Some business is being passed to the Lloyd’s market.

Spurring the Government’s decision to act is the awareness that this disaster is reaching to the heart of too many Australian businesses and communities. This is an election year, and it is not a time for the perception of mean-heartedness. The Federal Government has been taking a lot of criticism from the five ALP-governed states. It liked the insurers’ plan, but doubted it could be sold to the community without state government support. It needed to take its own decisive step.

Following yesterday’s Cabinet meeting in Sydney, Prime Minister John Howard announced that the Government will act on several fronts:

• It will ask insurance companies to take over from HIH the existing and future claims for “certain classes of policies”. The Government is prepared to offer “substantial support” from next week’s federal Budget to assist with this transfer.

• Mr Howard said the industry’s plan for a levy on policies hasn’t been ruled out. But the Government would prefer to negotiate the transfer of existing and future claims to an insurer and make necessary commercial arrangements to give this effect.

• The Federal Government will provide ASIC with initial support of $5 million to obtain the best available support both in Australia and overseas for their investigations into the failure of the company.

• The Government will fast-track its legislative reforms to the general insurance industry and work with the industry to bring forward the start of the new regime. This will require insurance companies to improve their capital adequacy well ahead of the timetable previously announced.

• Mr Howard will write to premiers and chief ministers seeking their co-operation to undertake a thorough review of state and territory legislation, with a view to introducing single national insurance schemes in CTP, workers’ comp and builders’ warranty insurance. It also wants to put in place a national approach to flood insurance.

Such concessions to the industry indicate that deals are about to be negotiated between the industry and the Government. But the states will almost certainly refuse to be involved in yet another report that exposes their insurance monopolies and different legislative approaches.

In a statement released last night, Mr Hockey said the Government continues to wait on the HIH provisional liquidator, Tony McGrath, to provide detailed information on the true state of HIH’s financial affairs. Earlier yesterday Mr McGrath was given permission by the NSW Supreme Court to delay a report on the company until May 31.

Mr Hockey said “further and more detailed announcements” will be made over the coming weeks. In the meantime, a special dedicated toll-free number has been set up at Centrelink to assist any HIH claimants suffering hardship.

While Mr Howard rejected the Insurance Council plan for a 1% levy on all policies as “inequitable” at this time, Mr Hockey earned kudos for taking a solution to the increasingly beleaguered Cabinet. The Minister indicated at the ICA annual dinner two weeks ago that all classes of general insurance – including workers’ comp and CTP – should have uniform national regulation.

The fact that the Federal Government has ignored this for many years is significant. Mr Hockey has taken the high ground away from the states, which are basically offering money only to bail out people affected by CTP, workers’ comp and builders’ warranty insurance.

The move wrong-footed Victorian Finance Minister Lynne Kosky, who announced a $35 million outlay to get building projects back into action at the same time as Mr Howard spoke to the media. NSW announced on Friday that it would cover its workers’ compensation and builders’ warranty problems with a $50 million allocation. Ms Kosky said Victoria “will pick up the workers’ compensation liability” in the future.

Attacking Mr Howard’s call for national regulation for Victoria’s statutory schemes – which the insurance industry says are uncompetitive and unnecessarily expensive – Ms Kosky said the Government is trying to move the focus on to the schemes in the states and away from the HIH situation.

“We have concerns about a levy paying for government responsibilities,” she said, adding that the Federal Government “hasn’t gone as far as the states. It’s a Clayton’s response.”

Mr Hockey also demanded that the states take responsibility for their monopoly insurance schemes. Because they maintain and control the statutory schemes, the states are by now well aware of the extent of the HIH exposure, and there is little reason for delay.

The activity surrounding the HIH issue was acknowledged by Mr Hockey, who said: “The insurance industry is the most complicated industry, bar none. Policyholders win when we come up with solutions.”