Fair Trading Amendment (Motor Vehicle Insurance and Repair Industries) Bill 2006
Reverend the Hon. Dr GORDON MOYES: In debate I wish to add a few points to what my colleague Reverend the Hon. Fred Nile said in the second reading debate on the Fair Trading Amendment (Motor Vehicle Insurance and Repair Industries) Bill. The object of the bill is to amend the Fair Trading Act 1987 to require compliance with an industry code of conduct for motor vehicle insurers and repairers. The Christian Democratic Party has looked at this very closely and has been in contact with quite a number of people in the industry. I should say up front that I have been involved as a director of quite a large national car insurer for over 20 years, during which time took an interest in the whole issue of car repair and car insurers.
The smash repair industry is characterised by a multiplicity of car repairers and a handful of car insurers. A large proportion of car repairers are generally small business operators, that is, businesses employing fewer than five people. These businesses contribute around 64 per cent of the total income earned by the industry. Due to comparative size, the market influence of repairers pales in comparison to the influence wielded by insurers within the industry. Thus, any significant change made by insurers will directly affect and impinge on market practices and, consequently, on the manner in which repairers conduct their business. With the pressure of increasing profits, retaining market share and satisfying shareholders, insurers have brought about significant changes to the industry in the past decade.
For instance, technological developments and changed organisational service delivery structures have led to marketplace phenomena such as online business, outsourcing and streamlining of operations. The end product aimed for by insurers is a more efficient and effective way of conducting business, benefiting consumers and their shareholders alike. However, such developments have not benefited a number of repairers and, accordingly, have caused immense friction between insurers and some repairers. My office has been contacted by quite a number of repairers who have suffered greatly because of this friction between the insurers and some repairers. One specific change brought in by some insurers has been the adoption of an arrangement known as the “preferred repairer” or “network repairer”. That arrangement is not new; I can remember it operating 20 years ago. Under this arrangement, an insurer will steer all business towards a network of preferred repairers. Insurers have asserted that these arrangements benefit the consumer by reducing administrative overheads, lowering repair costs from economies of scale, bringing about faster turnaround times and better control of quality. However, some repairers have met these arrangements with stiff opposition. The Productivity Commission, in its 2005 Report, entitled “Smash Repair and Insurance”, explored some of the downsides of these arrangements. It stated:
Preferred smash repairers (PSRs) face considerable added pressure as insurers drive costs down; contracts appear detailed and somewhat intrusive; tenure of PSR status is not secure and PSR status is generally nonassignable and thus lost if the business is soldNon-preferred repairers often miss out on work, (particularly as insurers, through ‘valet’ services and managed repair schemes, ‘direct’ consumers to preferred repairers); suffer the loss of long term consumer relationships; receive slower payment for the insurance work they manage to obtain; and often have to deal with a misleading perception that they provide lower quality work.
Another contentious issue is the use of Internet tendering systems for repair works. As mentioned in the second reading speech, in July 2003, the Insurance Australia Group developed its network repairer scheme by introducing such a system. Clearly, the Internet is a viable platform for a market, as we have seen with the success of online auctions such as e-Bay. Internet tendering means that pictures of a vehicle, plus an assessment of the work needed to be done can be posted on a secure web site. It is then incumbent on repairers to place quotes on the repair jobs. It is clear that this forum lends itself to the provision of competitive quotes. However, some factors may be amiss under this arrangement. What if the photograph does not accurately portray the extent of the car damage? If that is the case, it is likely that the repairer will underquote the amount necessary to repair the vehicle. What if a repairer, in providing the most competitive quote, undermines the quality of repairs? Standards are then compromised.
The repair industry, led by the Motor Traders Association, has in fact claimed that this online scheme is unsafe on the basis of some of these reasons. Significantly, a Staysafe committee report back in December 2005 found that this system resulted in poor quality repairs and should be suspended.
In her second reading speech in the other place the Minister had this to say about concerns in the industry as a whole:
There have been general concerns about the outcomes of the changing insurer-repairer relationship, including the transparency of network repairer arrangements, the transfer of network repair status when the repair business is sold, repair methods, responsibility for repair warranties, payment terms, and the fairness of online tendering systems.
Importantly, these concerns and issues are not unique to repairers in New South Wales; they are national. Consequently, the Federal Treasurer requested that the Productivity Commission inquire into the relationship between the Australian motor vehicle smash repair industry and the motor vehicle insurance industry. It is significant to note the commission’s report in this context, because it precisely identifies the issues that repairers have grappled with across New South Wales. The commission delivered its report on 17 March 2005. Most of the issues between the two industries, in the view of the commission, “overwhelmingly stem from a lack of trust and co-operation between the two industries”. Unfortunately, as the dispute has a long, adversarial history, scope for relationship building between the two industries has been far from a reality. The commission cited anecdotal evidence of persistent problems occurring between the two parties, especially in relation to transparency, fair trading and the efficiency of operation of the market. Four options were laid out to address the ongoing dispute. These may be briefly put as follows: first, continue to rely on the current practices and procedures of insurers, including their individual corporate codes of conduct, where they exist; second, adopt legislative means such as “anti-steering” provisions; third, take action in a broader context, for example, through amending the Trade Practices Act; and fourth, develop an industry-wide code. The commission’s view, particularly in view of the major differences in negotiating strength between insurers and repairers, was:
There is prima facie justification for the development of an industry-wide code as a cost-effective way to improve the relationships between insurers and repairers However, the net benefits of a code depend critically on its scope and content.
The Australian Competition and Consumer Commission also suggested a voluntary code of conduct in 2003. Importantly, the commission determined that the framework’s focus should be on the insurer-repairer dynamic. Therefore, it would not be appropriate to set down a mechanism to resolve insurer-consumer or consumer-repairer issues. Ample scope has been granted for resolution of these issues in other regulatory fora. Notably, on 18 August 2005 the Federal Government announced the establishment of an industry code of conduct in response to the Productivity Commission’s inquiry. The Federal small business and tourism Minister, Fran Bailey stated:
An industry code will inject transparency and certainty for smash repairers and will go a long way to resolving the longstanding disagreements between the two sectors The Government agreed with the key recommendations of the report—that disputation between the parties is serious enough to warrant the introduction of an industry code.
The national industry code is due to have a staggered commencement, beginning in September 2006. Importantly, the code will provide a transparent and independent external dispute resolution mechanism, the requirement for full disclosure in preferred smash repairer arrangements, the retention of preferred smash repair status upon the sale of a business, the requirement for full disclosure in quoting for work and payment, standards for the allocation of responsibility for repair warranties, standards for payment terms, and requirements for up-front disclosure on whether insurance policies provide choice of repairer. In view of the national code, it is apparent that the New South Wales Government has seen fit to legislate for the New South Wales repairer and insurer industries. The bill inserts a new part 5E into the Fair Trading Act 1987 and also makes incidental amendments to other sections of the Act. This part will enable an applicable industry code of conduct to be declared by regulation.
Significantly, it will be mandatory for an insurer or repairer, in trade or commerce, to comply with an applicable industry code of conduct. Further, enforcement or remedies under the Act will be available to insurers or repairers. However, they will not apply unless, first, the dispute resolution procedures under the code have been followed but the dispute has not been resolved, or, second, the insurer or repairer refuses to take part in those procedures. Action by an insurer or repairer may only be taken if the insurer or repairer is not the party refusing to take part in the dispute resolution procedures under the applicable code.
Enforcement of the code will be through a range of existing civil, rather than criminal, measures in the Fair Trading Act. This puts a breach of code on the same level as misleading and deceptive conduct and unconscionable conduct. A number of remedies will be available to enforce the code, including: court injunctions, orders to disclose information, show cause actions to cease trading, trading prohibition orders and civil actions for damages. The Department of Fair Trading will be able to apply for injunctive court orders on behalf of wronged parties. Lastly, the Minister and the director general will have the discretion to refuse to take action under part 6 if they consider that it is not in the public interest to take that action.
As the Productivity Commission put it, the effectiveness of the code will depend on the code’s scope and content. In my opinion it is fair to say that the code will provide greater transparency and guidance in relation to many of the issues that have vexed the parties. It will indeed be an improvement on the current situation. One example is that in relation to network smash repairer schemes the code will require that insurers document and publish criteria for membership of those schemes. This level of transparency had not previously existed. The code also provides guidance for the estimate, repair and authorisation process, repair warranties, payment terms and, most importantly, the dispute resolution process. We have received many letters from constituents who run a repair business or who have friends who run a repair business. Their complaints have typically consisted of claims that a certain insurer has allegedly told a smash repairer the price to fix the vehicle, told a smash repairer where to buy the second-hand parts from, the source of these second-hand parts being a company owned by that insurer, and called in a company of their choice which then uses the smash repairer’s facilities—for example, workshop and power and so on—for which the smash repairer receives no commission.
It is hoped that the code will be a start towards resolving the longstanding issues between insurers and repairers. And, I do hope that small businesses do not continue to lose out over the current system. In this context, it is right to pay regard to the initiative of Mr Richard Torbay, the Independent member for the Northern Tablelands, in introducing the Motor Vehicles Repairs (Anti-Steering) Bill into the Legislative Assembly. This bill brought attention to the many and varied issues that the instant bill seeks to address. This legislative initiative may well have prompted the Government to introduce the bill we debate in the House today. On behalf of the Christian Democratic Party I commend this bill to the House. I would encourage the Government to push ahead on this issue. We all remember when it seemed impossible to change the old system of standover merchants driving tow trucks and the fights that used to break out between different firms and so on. All of those difficulties were eventually overcome by good legislation. We trust that this legislation will take a further step in the right direction.
