Foreign insurers must be allowed to write business in the Australian environment but regulatory imbalances must be fixed, according to leading insurers.
Treasury released a discussion paper examining options for the prudential regulation of foreign insurers following the completion of the Potts Review of the topic in 2005. But the industry appears divided on the best solution.
The Insurance Council of Australia (ICA) said that if foreign insurers are not brought into the Australian regulatory sphere, some policyholders may be left unprotected. However, QBE, Australia’s largest insurer, said direct offshore foreign insurers (DOFIs) fill a valuable gap in the Australian insurance business.
“As such, our comments on the recommendations outlined in the discussion paper are based on the belief that there is a place for DOFIs in the Australian market in order to meet those gaps that local insurers are unable or unwilling to meet,” Frank O’Halloran, QBE’s CEO wrote in the firm’s submission to Treasury. “This is on the basis that there is a prudential framework which ensures a level playing field for all market participants, that does not place local insurers at a competitive disadvantage and which welcomes reputable and secure DOFIs such as QBE London from jurisdictions with comparable prudential regulation.”
QBE, while an Australian-based insurance group, is also a DOFI, in the form of its London subsidiary QBE Insurance Europe.
Other insurers added that the government should be concerned about DOFIs. “The idea that DOFIs merely fill a small market gap and, therefore, their activities are not of great concern underestimates their potential,” said John Hewitt, company secretary at Assetinsure. “If DOFIs are permitted to continue to trade as now their competitive advantage will inevitably lead to a growth in market share undermining the regulator and consumer protection.”
He added that the Australian Prudential Regulation Authority should look at ways to reduce the regulatory burden on APRA-regulated insurers to reduce the cost gap between themselves and DOFIs.
The consultation period on the regulation of DOFIs is now closed.