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Lion points out its protections as brokers warned over UFIs

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Retail brokers have been warned against “creating a liability” for themselves when placing business with unauthorised foreign insurers (UFIs).

Chris Dardaneliotis, a director with underwriting agency Sterling Insurance, has raised the concern after Lion Underwriting announced a deal with China Taiping Insurance to write marine-related risks in the Australian market.

Hong Kong-listed China Taiping has no Australian Prudential Regulation Authority (APRA) licence, but Lion says it has put in place protections to ensure claims will be honoured.

Lion has secured claims settlement authority, a multi-year agreement and use of legal representatives for disputes as part of the agreement with China Taiping.

“China Taiping is here for the long-term,” Lion Portfolio Manager Marine William Rich told insuranceNEWS.com.au. “When considering our options for a long-term, viable partner we assessed China Taiping’s strength, security and history.”

Mr Dardaneliotis – whose company does not deal in marine risks – has pointed out that UFIs are normally accessed only when the APRA-approved or licensed market cannot provide a solution.

“I would not think it’s very wise to place business with a UFI unless it’s a very specific, limited, finite space that both the National Insurance Brokers Association (NIBA) and APRA recognise as being the only solution – for example, aviation.”

He says retail brokers must be aware they create a liability for themselves as soon as they place a policy with a UFI – “particularly when there are credible, alternate solutions out there already”.

However, such solutions are limited in the harder market conditions being experienced by brokers at present. The latest APRA statistics show a growing reliance on UFIs in the local market, mainly as a result of local underwriters and the normal alternative underwriter Lloyd’s tightening their terms and limiting acceptance.

Intermediaries placed $728 million in premium with UFIs in the six months to December 30, up from $643 million in the corresponding period of 2017.

NIBA CEO Dallas Booth says brokers are aware of the challenges and opportunities when placing business with unauthorised foreign insurers.

“Brokers are already placing significant premium overseas and they do that where they are satisfied the security is real and the terms and conditions and pricing are appropriate,” he told insuranceNEWS.com.au.

“I think brokers quite rightly are cautious, because the last thing you want is to place business with insurers who just aren’t there when you need claims to be paid. That’s the critical thing.”