North Queensland residents who buy insurance through unauthorised foreign insurers (UFI) will be protected by their broker’s involvement, Finance Minister Mathias Cormann says.

He told the Senate Estimates Committee on Friday that although using UFIs involves a risk, it is manageable because of brokers’ involvement and is worth it to obtain lower premiums.

Senator Cormann says brokers must be licensed and have external dispute mechanisms, and allowing them to deal with UFIs will increase transparency and put downward pressure on prices in the region.

Last month the Federal Government announced that brokers will be allowed to place home and contents cover with UFIs if they offer much better prices than local carriers.

It also charged the Australian Securities and Investments Commission (ASIC) with setting up an aggregator website for domestic cover in north Queensland.

Opposition senators questioned the consumer protections available with UFIs, which write about $1 billion of business in Australia but normally for unusual and complex risk.

Queensland Labor senator Jan McLucas says there is a petition circulating among brokers in north Queensland protesting against the use of UFIs.

She says if a UFI does not pay claims, the broker will be liable.

Senator Cormann says brokers can make judgements on products and it is better for consumers to have cover with UFIs than to have none because they cannot afford it.

Brokers have questioned how UFIs will handle large numbers of domestic claims and have told insuranceNEWS.com.au their professional indemnity insurers will not cover them to use UFIs.

Labor senator Sam Dastyari notes the industry has criticised the moves, and asked about the consequences of “bringing in insurers who are not meeting our prudential and regulatory standards and who are not being regulated by us”.

Senator Cormann says aggregators have helped lower the prices of other insurance, such as health cover.

“All the things the Government has tried to bring together are… designed to try to increase competition in the market, but it is not surprising that those who will have to deal with that competition are not necessarily universally excited about that.”

Treasury executive Meghan Quinn told the committee “current arrangements around consumer protections for UFIs are through a broker, and that will remain the case”.

The industry’s criticisms were also raised in Federal Parliament last week when north Queensland MP Warren Entsch attacked the Insurance Council of Australia (ICA).

ICA has raised concerns that UFIs may not be able to handle claims, but Mr Entsch says this is “a joke”.

“Many consumers cannot even get a policy with an existing Australian insurer due to the lack of competition in the market or the ridiculously overpriced premiums, and that is why we are being driven to overseas insurers in the first place,” he told Parliament.

He says ICA is showing a reluctance to engage aside from “taking swipes” at Government initiatives, while the National Insurance Brokers Association “has no problem with UFIs”.

Mr Entsch says north Queensland consumers will not buy insurance on price alone because they understand the complexity around cover.

He has asked the Australian Government Actuary to investigate insurance costs for small businesses and rural householders.

“It is still very disappointing to note the lack of significant action to date by the big insurers.”

He says underwriting agency Brooklyn has entered the market but does not cover storm surge on properties within 500 metres of the coast, while CGU is more promising because its engineering assessments of strata properties have cut premiums.

Northern Australia has a small population spread over a wide area and is easy for insurers to ignore, but “this demonstrates zero social and community responsibility”, Mr Entsch says.

He cites IAG and subsidiaries CGU, NRMA, WFI, Coles and Lumley as recording a 10.6% profit increase this year, and says CEO Mike Wilkins’ salary was $6.1 million. 

“That is not a bad effort.”

Suncorp’s insurance businesses have also increased profit and CEO Patrick Snowball earned $9 million, according to Mr Entsch.

ICA has rejected claims the industry does not engage with the Government, saying it continues to brief politicians.

“Individual insurers and ICA have been very active across Australia and northern Queensland on a number of affordability initiatives,” a spokesman said.

Mr Entsch told insuranceNEWS.com.au talks with the Territory Insurance Office (TIO) have proved fruitless because it does not have the appetite to expand.

The TIO is restricted to operating in the NT and is also facing sale by the Territory Government.

Mr Entsch says he is still discussing formation of a mutual insurer.