Seeking clarity on a murky issue
Nearly 50 brokers and lawyers attended a seminar in Brisbane on unauthorised foreign insurers (UFIs) last week. There’s a huge amount of interest in UFIs among brokers, and the Brisbane seminar revealed an amount of nervousness about whether the Federal Government’s initiative will address the north Queensland insurance affordability problem.
Some brokers flew down from north Queensland to attend, and such was the interest that the meeting was recorded for others who couldn’t make it.
Fears were expressed of damage to the industry’s reputation if dodgy operators enter the market. They’ll hopefully get clarity – of which so far there has been none – with draft regulations relating to UFIs and home insurance expected later this month or early next month.
These should explain what the Federal Government means when it says it is clarifying the rules by which brokers can place business with foreign insurers.
Meanwhile, consumers will get access to the ASIC comparison site due to go live next month. It is being developed for the regulator by actuarial company Finity.
Suncorp Group CEO Patrick Snowball was asked about north Queensland last week when delivering the group’s half-year profit, and he confirmed the insurer will be participating in the comparator. However, smaller player Youi is keeping its options open. Don’t expect its larger competitors to be enthusiastic supporters of the website if there are no-shows.
Mr Snowball reiterated the view that Suncorp’s premiums for north Queensland reflect risk in the cyclone-prone region. He went on to say the insurance market has few barriers to entry.
“We want to see insurance properly regulated and a level playing field,” he said, referring to “loose words coming out of Canberra” on UFIs.
“Foreign insurers have always been allowed into north Queensland. It is a matter of whether they are regulated or not.”
And that’s the point worrying brokers.
The Australian Insurance Law Association (AILA) and the National Insurance Brokers Association (NIBA) organised the Brisbane seminar, and AILA committee member and NIBA fellow Robert Cooper says concerns were raised about potential reputational damage.
Mr Cooper, director of CPR Insurance Services, told insuranceNEWS.com.au there are concerns that a “cowboy” could come into north Queensland offering cheap premiums “and then get out very quickly, and the clients have to find new insurers”.
The meeting assuaged some concerns, hearing that reinsurers will set a fair price for the risk and insurers’ prices will have to reflect that.
And NIBA CEO Dallas Booth says brokers already place business with UFIs – ones that are reputable and highly regarded.
“These insurers would know and understand the risks with north Queensland, so they would have their own views and reinsurers with views,” he told insuranceNEWS.com.au following the meeting. “I would be surprised if these views would greatly differ from the Australian market on risk and pricing.”
Brokers currently write sophisticated and unusual risks with UFIs, such as for health research and loss or liability arising from war or terrorism.
Regulations require the broker placing the risk to be satisfied that a local insurer will either not cover it or will only do so on terms that are substantially less favourable than a UFI would accept.
The question for north Queensland brokers is whether they know enough about UFIs prepared to enter the market with substantially more favourable terms.
Before a regulatory crackdown 10-12 years ago, shonky foreign insurance companies – some owned by Australian opportunists who still hang around the industry – were active in the north Queensland market and in high-risk industries around Australia.
Neither the Australian Securities and Investments Commission (ASIC) nor the Australian Prudential Regulation Authority is happy with the Government’s decision to reopen the Australian market to UFIs with no idea of how far they might spread their wings.
But the regulators have a job to do, and brokers – who will have to shoulder the responsibility for using a UFI – will be seeking from ASIC a clear explanation of their obligations in dealing with their clients and unregulated insurers.
Industry sources tell insuranceNEWS.com.au the comparison site will have information about insurers and their products but will have to direct consumers to the insurers’ websites for a price, rather than copy the comparator model most typically used for insurance products.
This may assuage some of the concerns of ASIC and others. Commissioner Peter Kell told Insurance News (the magazine) in 2012 personal lines comparator sites are “dangerous things in many ways – the potential inaccuracies and conflicts are obvious”.
The Government’s argument for allowing UFIs to write north Queensland home insurance is that they will bring more competition to the market by accepting a lower price for the business.
It remains to be seen whether they will find the region an attractive market. But the Government has placed no geographical limit on their activities in Australia, so the future is – like everything to do with UFIs so far – murky.