Retail brokers have been cautioned against “creating a liability for themselves” by placing business via capacity sourced from unauthorised foreign insurers (UFIs).

The caution from underwriting agency Sterling Insurance has been met with a sharp rejoinder from Brisbane-based agency Lion Underwriting, which insuranceNEWS.com.au reported yesterday has signed an agreement with Hong Kong-listed China Taiping Insurance Company to write marine-related risks in the Australian market.

Sterling Director Chris Dardaneliotis said today that UFIs are normally only accessed when an Australian Prudential Regulation Authority (APRA)-approved or licensed market cannot provide a solution to a customer.

As reported by insuranceNEWS.com.au yesterday, Lion started searching for alternative sources after experiencing frustration with Lloyd’s lack of “consistency and enthusiasm”.

“Everybody knows there is a huge change in appetite and structure for marine in London and other markets around the world, which becomes frustrating for brokers and their clients when they are looking for a consistent approach to their business,” Lion Portfolio Manager Marine William Rich said.

Mr Dardaneliotis says that from his perspective – and his company does not handle marine risks – “I would not think it’s very wise to place business with a UFI unless it’s a very specific, limited, finite space which both the National Insurance Brokers Association (NIBA) and APRA recognise as being the only solution – for example, aviation.

“Even then, NIBA has recommendations on steps brokers should take to ensure the insured makes a fully informed and conscious decision."

Lion’s Mr Rich says the agency has secured claims settlement authority, a multi-year agreement and use of its legal representatives for disputes as part of the agreement with China Taiping.

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

“China Taiping has a long healthy history of strength and security, not only within the Asian markets but also on a global platform.

“The inclusion of marine and the use of China Taiping as security bolsters our claim of finding first class insurance solutions.”

Mr Dardaneliotis says his sole concern in raising the matter is so that retail brokers “know that 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”.

“If a retail broker places a policy with a UFI when there are APRA-approved or licensed solutions available, then that broker is exposed to litigation from the insured if the claim is not paid or handled satisfactorily.”

But the trend to use UFIs is increasing in the face of the increasingly hard market, where underwriters are avoiding high-risk business and restricting their contract terms.

The latest APRA statistics show a growing UFI presence in the local market. Intermediaries placed $728 million in premiums with UFIs in the six months to December 30, up from $643 million in the corresponding period of 2017.