The long-awaited Federal Government decision on new arrangements for the regulation of direct offshore foreign insurers (DOFIs) is expected before the end of the month.

The new arrangements are expected to ban Australian financial services (AFS) licensees from placing insurance with a DOFI not approved by the Australian Prudential Regulation Authority (APRA) or authorised under the Insurance Act.

That’s a result that will please locally licensed insurers, but brokers won’t be happy. Some exemptions may be allowed for sophisticated purchasers of insurance and for insurance that is hard to place in the Australian market.

The exemption details are yet to be determined, but there has been considerable debate in the industry surrounding this issue. Last week a National Insurance Brokers Association (NIBA) delegation lobbied Assistant Treasurer Peter Dutton about the proposals, saying there will be an adverse effect on the availability and affordability of insurance in Australia if the regulations go ahead as has been indicated.

NIBA CEO Noel Pettersen says the proposal would cause many DOFIs subject to prudential supervision in their home jurisdictions to stop writing Australian risks. This would lead to restricted availability, higher premiums and lower levels of competition.

“Many Australians would be denied access to the cover and expertise offered by high-quality overseas insurers that for a variety of reasons did not want to establish a presence in Australia,” he said.

NIBA is pushing for a DOFI approach similar to that being considered by the Federal Government for discretionary mutual funds (DMFs).

This involves a low level of regulation, increased licensing and disclosure requirements, monitoring through ongoing analysis and data collection, and later adjustment to cover any regulatory problems that emerge.

Mr Pettersen says this would offer a reasonable level of consumer protection while restricting competition from companies in regulatory jurisdictions that are less than stringent.

“It would also be consistent with the recommendations of the HIH Royal Commission,” he said.