All aboard the unstoppable DOFI Express
The much-anticipated release of the exemptions to the direct offshore foreign insurers (DOFI) regime means the endgame could finally be in sight for brokers and insurers.
Treasury was faced with a difficult juggling act between the competing interests of diverse stakeholders. It had to balance the need for brokers to find cover for hard-to-place risks and the views of locally authorised insurers dismayed at premiums disappearing overseas. And then there is the mantra of consumer protection.
NIBA has taken a dim view of the amendments to the three so-called “limbs” of draft exemptions, which include reducing the list of atypical risks in the second limb and increasing the size of firms in the first high-value insured limb from 300 to 500 employees.
In response, the Treasury mandarins responsible for the regulation have made it clear the time for horse-trading is over.
While NIBA’s call for a premium test has gone unheeded, the open-ended nature of the customised exemptions in the third limb combined with the specified (albeit reduced) atypical risks, mean brokers should still be able to place risks, even if the market starts to harden as many commentators are predicting.
But NIBA CEO Noel Pettersen has concentrated much of his fire on the timeframe for implementation, arguing Treasury hasn’t provided the requisite detail to enable brokers to implement the arrangements by July 1.
And Blake Dawson Partner Mark Radford also criticises rushing through the regulations. “It’s very short-sighted to rush it,” he told insuranceNEWS.com.au. “It puts clients and brokers under a great deal of pressure.”
But Vicki Wilkinson, Manager of Treasury’s Insurance Access and Pricing Unit, rejects claims Treasury has been tardy in finalising the exemptions. “It’s been a tight timeframe but we’re on track for a July 1 implementation date,” she said.
And Allianz Corporate Affairs GM Nicholas Scofield isn’t convinced brokers need more time to implement the regulations, which he believes are cosmetic and “unlikely to make any difference at all”.
The omission of the premium test illustrates the chasm separating brokers and locally authorised insurers on the issue. Mr Scofield claims the test would be difficult to administer due to the vagaries of the market and the varying state-based insurance taxes.
Unsurprisingly, Mr Pettersen doesn’t agree. “Not only is premium more relevant but it is also far simpler for insurance brokers to administer than the other high-value insured tests which require interpreting, collecting, combining and auditing of information supplied by clients,” he said.
The ultimate impact of the DOFI legislation may be more prosaic. Treasury will compile an annual report detailing the premiums flowing out of the local industry across the three limbs. The data will then be used to track market trends and tweak the legislation if necessary.
“We will now have actual data as to how much is going to DOFIs, who’s putting it there and what classes are involved,” Mr Scofield said. “Up until now, the estimates of what’s going into DOFIs have varied dramatically – from 2.5% in the Potts review to 7.5%.”
And ICA CEO Kerrie Kelly, while welcoming the creation of a “level playing field” between domestic and foreign insurers, has put regulators on notice the council expects a prompt adjustment of the legislation if the data demands it.
“It is important that Treasury has committed to regularly reviewing and adjusting as appropriate the exemptions in light of experience with the type of insurance being placed with offshore insurers,” Ms Kelly said.
But Treasury may not respond by tightening regulations if it detects increasing levels of premiums go offshore. Mr Scofield says using a DOFI “is like buying an imported car as opposed to going for a local car”.
“I don’t think they see much merit from a competition or trade policy perspective in implementing a regime such as Europe and US that you have to buy insurance from a local provider and the mechanisms for going offshore are very tight.
“Those regimes are based on a fundamental philosophy quite different to Treasury’s philosophy.”
The DOFI Express will keep brokers and insurers on guard for a while yet. And like it or not, the legislation is working to a seemingly unstoppable timetable.
Treasury was faced with a difficult juggling act between the competing interests of diverse stakeholders. It had to balance the need for brokers to find cover for hard-to-place risks and the views of locally authorised insurers dismayed at premiums disappearing overseas. And then there is the mantra of consumer protection.
NIBA has taken a dim view of the amendments to the three so-called “limbs” of draft exemptions, which include reducing the list of atypical risks in the second limb and increasing the size of firms in the first high-value insured limb from 300 to 500 employees.
In response, the Treasury mandarins responsible for the regulation have made it clear the time for horse-trading is over.
While NIBA’s call for a premium test has gone unheeded, the open-ended nature of the customised exemptions in the third limb combined with the specified (albeit reduced) atypical risks, mean brokers should still be able to place risks, even if the market starts to harden as many commentators are predicting.
But NIBA CEO Noel Pettersen has concentrated much of his fire on the timeframe for implementation, arguing Treasury hasn’t provided the requisite detail to enable brokers to implement the arrangements by July 1.
And Blake Dawson Partner Mark Radford also criticises rushing through the regulations. “It’s very short-sighted to rush it,” he told insuranceNEWS.com.au. “It puts clients and brokers under a great deal of pressure.”
But Vicki Wilkinson, Manager of Treasury’s Insurance Access and Pricing Unit, rejects claims Treasury has been tardy in finalising the exemptions. “It’s been a tight timeframe but we’re on track for a July 1 implementation date,” she said.
And Allianz Corporate Affairs GM Nicholas Scofield isn’t convinced brokers need more time to implement the regulations, which he believes are cosmetic and “unlikely to make any difference at all”.
The omission of the premium test illustrates the chasm separating brokers and locally authorised insurers on the issue. Mr Scofield claims the test would be difficult to administer due to the vagaries of the market and the varying state-based insurance taxes.
Unsurprisingly, Mr Pettersen doesn’t agree. “Not only is premium more relevant but it is also far simpler for insurance brokers to administer than the other high-value insured tests which require interpreting, collecting, combining and auditing of information supplied by clients,” he said.
The ultimate impact of the DOFI legislation may be more prosaic. Treasury will compile an annual report detailing the premiums flowing out of the local industry across the three limbs. The data will then be used to track market trends and tweak the legislation if necessary.
“We will now have actual data as to how much is going to DOFIs, who’s putting it there and what classes are involved,” Mr Scofield said. “Up until now, the estimates of what’s going into DOFIs have varied dramatically – from 2.5% in the Potts review to 7.5%.”
And ICA CEO Kerrie Kelly, while welcoming the creation of a “level playing field” between domestic and foreign insurers, has put regulators on notice the council expects a prompt adjustment of the legislation if the data demands it.
“It is important that Treasury has committed to regularly reviewing and adjusting as appropriate the exemptions in light of experience with the type of insurance being placed with offshore insurers,” Ms Kelly said.
But Treasury may not respond by tightening regulations if it detects increasing levels of premiums go offshore. Mr Scofield says using a DOFI “is like buying an imported car as opposed to going for a local car”.
“I don’t think they see much merit from a competition or trade policy perspective in implementing a regime such as Europe and US that you have to buy insurance from a local provider and the mechanisms for going offshore are very tight.
“Those regimes are based on a fundamental philosophy quite different to Treasury’s philosophy.”
The DOFI Express will keep brokers and insurers on guard for a while yet. And like it or not, the legislation is working to a seemingly unstoppable timetable.