The Federal Government’s plan to prompt greater foreign insurer involvement in North Queensland will be limited to a small clarification on the relevant legislation.
The insurance industry has raised serious concerns about Finance Minister Mathias Cormann’s intentions to increase the level of premium written by unauthorised foreign insurers (UFIs).
Cormann announced the plan last week, saying it would boost competition.
Currently, brokers are able to place policies with UFIs through a number of exemptions if certain circumstances are met.
One of those exemptions covers risks that cannot reasonably be placed with an Australian insurer.
The Insurance Amendments Regulations 2008 reads: “the terms (including price) on which any Australian insurer will insure against the risk are substantially less favourable to the insured than the terms on which the unauthorised foreign insurer will insure against the risk”.
Broker Buzz understands that the Federal Government will clarify that where Australian insurers price a risk at relatively high levels, brokers can place the risk with a UFI if a substantially lower price is offered.
Insurance Council of Australia (ICA) Acting CEO Karl Sullivan says North Queensland consumers need to be assured their insurance products offer the same level of protection as the those in the rest of Australia.
“This is particularly important given the very high exposure households and businesses in this region have to cyclones and floods,” he says.
“The industry is concerned consumers who buy a product from a UFI under these new guidelines may not be able to rely on that company to deliver on its promise if the consumer needs to make a claim.”
NIBA CEO Dallas Booth says brokers would never arrange cover on price only.
“Insurance brokers will only recommend insurance companies – local or foreign – that they have complete confidence in, in relation to the terms and conditions they offer, the prices they charge, and their willingness and ability to pay claims promptly,” he says.
“It is a professional indemnity exposure to brokers if they just arrange cover through the cheapest insurance company from overseas.”
According to APRA, 7% of all general insurance placed by brokers last financial year was placed with UFIs, accounting for $1.33 billion. This accounts for more than 9000 new or renewed policies.
Currently, almost two-thirds of these policies are placed in Singapore or the United Kingdom, with most of the premiums being written in fire and industrial special risks class. Professional indemnity, marine and aviation are next most common classes.