Insurers and brokers have criticised plans for a Federal Government-run comparison website for north Queensland insurance.

And brokers in the region say Finance Minister Mathias Cormann’s plan to allow unauthorised foreign insurers (UFIs) into the market will also fail.

Last Thursday Senator Cormann announced the Australian Securities and Investments Commission (ASIC) will set up a comparison website by March, while rules on UFIs will be clarified so brokers can sell cover “where they offer consumers a better price”.

The website will contain sample prices and policy information to help consumers approach insurers for quotes, Senator Cormann told insuranceNEWS.com.au.

The announcement shocked the industry, which has been in talks with the Government for more than a year about affordability in north Queensland.

Insurers object to being compelled to provide information to an aggregator, but some believe they may have no choice, with the Government nominating ASIC following their objections to giving information and commissions to an existing comparator.

When insuranceNEWS.com.au asked Senator Cormann whether insurers will be compelled to take part, he said: “The Government looks forward to the full participation of insurers in the north Queensland market in the comparison website.”

Suncorp CEO Patrick Snowball last week warned that comparison sites are price-focused and people may end up with cover that does not meet their needs.

North Queensland-based MP Warren Entsch – who has pushed for action on the region’s “market failure” – rejects claims the industry was not consulted. Insurers have “dealt themselves out of this debacle” by failing to offer affordable cover, he told insuranceNEWS.com.au.

Mr Entsch says allowing UFIs into the market will give brokers more flexibility to cover clients, while the comparison site will not focus solely on price and the industry should give consumers credit for being able to choose cover that best suits their needs.

Insurance Council of Australia (ICA) Acting CEO Karl Sullivan wants more details from the Government, with ICA and the National Insurance Brokers Association (NIBA) both raising concerns about UFIs’ ability to pay claims.

Mr Sullivan says licensed insurers operate under some of the tightest regulations in any industry sector.

“ICA believes all market participants selling retail insurance products must abide by the same set of laws and capital requirements, and exceptions should not be made that would diminish consumer rights and create further uncertainty,” he said.

Senator Cormann says there has been considerable misinformation about UFIs and brokers can already place business offshore under certain conditions.

“The Government is simply clarifying that consumers can, through licensed Australian brokers, get access to a better price offshore,” he said. “I note that the National Insurance Brokers Association has stated that the Government’s approach ‘would give brokers the flexibility to determine where the best cover for their clients might come from’.”

Steadfast CEO Robert Kelly says allowing unauthorised foreign insurers access is little different to arrangements under existing legislation, which allows them to write business where cover is not availably economically in the local market.

“If the local market can’t provide what the consumer wants then capital from overseas should be allowed to write the business,” he told insuranceNEWS.com.au. “It should be a free market.”

Mr Kelly says the lack of regulatory supervision is not a concern, with the fresh capital likely to be regulated by either the UK or the US.

Brokers place $1 billion of business a year with UFIs, mostly for unusual and high-value risk.

NIBA CEO Dallas Booth says almost all home and contents cover is placed with local insurers, which have the resources to respond quickly to natural disasters.

“It is a professional indemnity (PI) exposure to brokers if they just arrange cover through the cheapest insurance company in the South Pacific island of whatever.”

Mr Booth says brokers will only place cover with strong and reputable insurers that are able and prepared to pay claims.

Director of Cairns-based Optimus 1 Insurance Brokers Barry Koch told insuranceNEWS.com.au the announcement is “a bit of a joke”.

The comparison website will not drive down prices and will be a nightmare to set up, with multiple underwriters having to agree on the structure, he says. “I’d be willing to put money on the fact that it won’t happen by March, and if it does then it will be a spectacular failure.”

Mr Koch says UFIs are not the answer either.

“Our PI insurers would not cover us [to place business with foreign insurers] – so it’s not going to happen. It seems to fly in the face of all the measures brought in by the Government. Who’s going to pick up the pieces if it goes wrong?”

He says the only way to bring down prices is to encourage more competition.

“There are a lot of major insurers that don’t operate in north Queensland. They need some incentive to get back in. Whether that’s a reinsurance pool or not, I don’t know.”

Doug Olsen, director of Rivers Insurance Brokers, says he applauds the Government for attempting to do something, but a comparator will not be enough on its own.

“I think it will be a powerful influence to go for the cheapest premium rather than the best-quality product. Whether it gives access to a broader range of products remains to be seen.

“I welcome the effort but it doesn’t tackle the wider problem. This is a gnarly old bone that needs chewing right across its surface.”

He says he is unlikely to use UFIs, even if they can offer cheaper premiums, because there is no guarantee they could match the claims performance of domestic companies.

“If you don’t have the capability to back up a claim, should you be offering insurance? Such was the abuse hurled at brokers a few years ago for using foreign insurers, you were considered to be a dodgy operator.” 

Innisfail-based Mr Olsen says a nationwide catastrophe pool for bushfire, flood and cyclone could offer a real solution. “There is some merit in that and I don’t believe it would be that hard to do.”

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