A review of affordability and availability problems commissioned by the Insurance Council of Australia (ICA) has suggested a Lloyd’s style multi-underwriter approach as one option for difficult SME risks, while government intervention is seen as a last resort.

A consultation paper, produced by former insurance executive and regulator John Trowbridge in collaboration with economist Michael Blythe, includes 16 options for consideration.

The paper focuses on commercial lines and particularly SMEs, identifying issues with public liability, professional indemnity, directors’ and officers’, business interruption cover and some property risks.

“At the heart of many of the options is the proposition that the combined efforts of the interested parties, working together, can improve both availability and affordability in many areas of insurance if there is a will to do so,” Mr Trowbridge says in the executive summary.

“The interested parties are principally insurers, underwriting agencies, brokers, industry and professional associations and, in some circumstances, governments (commonwealth and state)."

On large risks it’s common practice for reinsurers, Lloyd’s syndicates and open market insurers to share exposures across multiple underwriters, but it’s rare in the SME market.

The review suggests underwriting consortia involving at least two insurers underwriting one or more difficult market segments could provide an SME solution, if firms could be sure competition laws wouldn’t be a problem, and were persuaded of the business merits.

Another alternative for spreading the risk could see agencies establishing co-insurance underwriting or binding authority with two or more insurers.

Options for discussion look at group captives and discretionary mutual funds, profession or industry association led initiatives, broker specialisation and the potential for an element of insurance industry-wide support, taking into account the public interest and the industry’s social licence.

“Individual insurers can choose to exit parts of the market to the apparent detriment of the business community and in some cases the economy,” the report says. “Insurers do not do so lightly, however, and are disturbed when accused of acting against the public interest in situations where they cannot support financially the expectations of some critics or insurance buyers.”

Mr Trowbridge says there’s no suggestion in the report that government intervention should be sought by insurers or by business interests before all other avenues have been thoroughly explored.

The report reiterates the need to address government taxes and charges, proposes collaboration on reducing regulatory barriers and highlights “awareness options” including standard documentation, advice and education on risk mitigation and notes the debate around brokers and their remuneration.

The report says experience shows SME customers are not willing to pay fees and abolition of commissions could adversely affect access and availability of advice for those needing assistance in markets where there are few insurers offering cover.

ICA says it engaged Mr Trowbridge to undertake his independent review to provide a summary of potential solutions that have been challenging sectors of the economy for some time.

“While some small businesses are facing challenges in accessing the insurance they need to operate, in many of these categories, insurers are under pressure to provide a profitable product so solutions are often difficult to determine,” ICA CEO Andrew Hall said today.

“The Trowbridge review shows that insurers are serious about engaging with these issues for the benefit of individual commercial policyholders and the economy as a whole.”

Submissions on the discussion paper, which sets out a number of questions, are due by Friday June 18. A subsequent report with proposals and recommendations for the industry, governments and other parties will then be finalised.

“The aim is to see how much traction each of the propositions attracts and to seek any other options or ideas to add to these propositions or to suggest variations to them that are worthy of consideration,” Mr Trowbridge says.

The discussion paper is available here.