INSURANCE BROKERS are calling for at least a three-month delay on new rules affecting the use of direct foreign offshore insurers (DOFIs) due to commence on 1 July, and say they need to be changed to reduce administrative complexity.
This month the Federal Government announced the planned exemptions to the new laws, which will require DOFIs operating in the Australian general insurance market to be subject to Australia’s prudential regime and oversight by APRA.
A detailed exposure draft of the exemption regulations will be released in late-April, but Noel Pettersen, chief executive of the National Insurance Brokers Association (NIBA), said even if the exposure draft were available now, it would be unlikely brokers would be able to meet the deadline.
“Not only do the proposed arrangements ignore requests from insurance brokers to be given reasonable time to implement the necessary administrative arrangements, their unnecessary complexity places an unfair burden on brokers,” he said.
The government says it will introduce exemptions with the legislation on 1 July for high-value insureds, atypical risk and customised exemptions, which will be decided on a case-by-case basis.
High-value insureds will be corporations, partnerships or trusts with a total group operating revenue of $200 million or more, or group assets to this value or that have 500 or more employees.
Atypical risks will include risks that cannot be covered with authorised insurers such as war, terrorism, or biological risks. An exemption will also be given if a broker can demonstrate that a risk cannot be placed with a locally authorised insurer outside these due to lack of market capacity, a “material difference in price”, a difference in non-price terms and conditions that will materially impact on the business or they can demonstrate “material benefits” from existing relationships with an insurer.
Pettersen told Risk Management NIBA supported the broad thrust of the exemptions, but said the customised exemption would be overly complex to administer, and it would also be simpler to just exempt all “very large premiums” rather than using the high-value insureds measure.
“The better way to do it would be on the basis of the amount of the premium because insurance is reflected by the cost of the premium, particularly sophisticated insurance,” he said. “They have given us no valid reason as to why an exemption based on premium amount would not be more effective.”
The Financial Sector Legislation Amendment (Discretionary Mutual Fund and Direct Offshore Foreign Insurers) Act which introduces the DOFI requirements sprang from a marked shift to offshore insurers following big hikes in price for public liability insurance that followed the collapse of HIH.