The Federal Government today finally confirmed the limited exemption arrangements for regulating direct offshore foreign insurers (DOFIs).

Despite intense industry pressure, Treasury has rejected calls for the inclusion of a premium test in the exemption regime.

NIBA CEO Noel Pettersen said this afternoon the lack of a premium test in the arrangements could mean added complexity and costs for brokers.

"This will mean a significant increase in the number of decisions that insurance brokers will have to make under the customised exemption, resulting in substantial administrative costs," Mr Pettersen told insuranceNEWS.com.au.

Apart from a few amendments, the Financial Sector Legislation Amendment (Discretionary Mutual Fund and Direct Offshore Foreign Insurers) Act's exemption regime is largely unchanged from APRA's discussion paper on draft prudential standards.

Its three "limbs" cover high-value insureds, atypical risks and customised risks.

The definition of a high-value insured remains at a total turnover or assets of $200 million, but the Government has increased the required number of employees from 300 to 500.

And the list of atypical risks has been culled, with equine, asbestos, product tampering, environmental impairment, political risk and kidnap and ransom not making the cut.

The final list of exempt risks that brokers can still place with DOFIs is nuclear, war, terrorism, satellite or space, biological risk, medical clinical trials, aviation liability and shipowners' protection and indemnity other than for pleasurecraft.

The Government has retained brokers' ability to self-assess whether specific risks cannot be placed with authorised insurers under the third customised limb, taking into account four criteria - capacity, price, other terms and conditions or ongoing relationships.

And a further exemption has been granted in cases where a foreign country requires the use of locally authorised insurers.

While NIBA has generally welcomed the exemptions, the Government's delay in formulating them has left brokers with minimal time to factor in the changes, with the new law coming into force on July 1.

"NIBA is particularly concerned about the very limited time that insurance brokers and their clients will have to implement the new arrangements," Mr Pettersen said.

Assistant Treasurer Chris Bowen claims the regime provides a balance between the needs of business and consumer protection, "with the acknowledged need that some insurance will not be able to be placed in Australia".

"There will be scope to further limit the exemption as Australia's innovative and competitive insurance market responds to more of the insurance needs that currently have to flow offshore because they cannot currently be written in Australia," he said.

Brokers and insurers will have the opportunity to comment on an exposure draft of the exemptions, which Treasury will issue later this month.

More details in our regular edition of insuranceNEWS.com.au next Monday.