NIBA CEO Dallas Booth has called for cool heads to prevail as confusion reigns over the Federal Government’s plans to encourage more unauthorised foreign insurers (UFIs) to participate in the Australian market.

Conceived as a method of helping reduce domestic premiums in disaster-prone North Queensland, the plan involves clarifying legislation to make it clear that brokers can sell policies from foreign insurers where they offer consumers a better price.

An unnamed major insurer caused a stir last week by warning Federal Parliament that insurance brokers’ professional indemnity (PI) policies wouldn’t cover deals done with UFIs.

Booth says NIBA runs its own PI scheme for members, managed by Arthur J Gallagher’s Professional and Financial Risk National Practice Leader, Stuart Davies.

“That scheme does not have a blanket exemption for business placed with UFIs and so, in the ordinary course of events, that’s not an issue,” Booth says.

“When placing business with an unauthorised foreign insurer, a broker will always want to satisfy themselves that the insurer is strong and well-capitalized and is not going to fail. Brokers place business with insurance companies that they expect will honour their claims when for payment.

“Brokers do that regardless of whether they work with local insurers or foreign insurers. That will continue to be the case.”

Last financial year, brokers placed more than $1.3 billion with UFIs, or about 7% of all insurance written by brokers.

Booth says it is standard procedure for brokers who are placing cover overseas to advise their clients of the risks and seek informed consent to proceed.

“This is what brokers do as a matter of course, so I feel the level of concern seems separate from what brokers actually do in practice,” he says.

Booth says Australia has a very strong regulatory structure for insurance and nothing he has seen so far indicates a threat to that.

“My understanding from talking to the government is that there’s no proposal to let foreign insurers come in and take over the domestic market,” he says.

“That’s not what we’re talking about and that’s not what the government announced. There have been some quite high levels of concern, but I’m not sure that level of concern is warranted.”

Booth says while NIBA welcomes any move to give brokers the flexibility to find the most suitable cover for their clients, they would be taking a very close look at the proposals once the Government releases more detail.