After much delay the Federal Government has ruled it will put direct offshore foreign insurers (DOFIs) under the same scrutiny as local insurers.

DOFIs will have to adhere to Australia’s strict regulation and capital requirements, but discretionary mutual funds (DMFs) have not attracted the same attention.

Assistant Treasurer Peter Dutton says the Government will subject DMFs to a rigorous and compulsory three-year data collection regime to better understand their use and operation and to ascertain if they should be prudentially regulated.

Mr Dutton says the new measures are designed to deal with any risk arising from unscrupulous or failed DOFIs.

“While Australia always welcomes well-capitalised and well-managed foreign insurers, we will now insist that they be subject to the same rules as Australian insurers.”

DOFIs will be regulated by the Australian Prudential Regulation Authority (APRA). Holders of an Australian financial services licence (AFSL) will be required to deal in authorised general insurance products, with limited exceptions. AFSL holders will also need to supply data on any dealing in DOFI and DMF products. [See REGULATORY]

Insurance brokers have welcomed the move, sort of. NIBA is concerned about local insurers’ ability to remain price-competitive and be willing to handle hard-to-place risks when the market hardens.

National Insurance Brokers Association (NIBA) CEO Noel Pettersen says while the decision to regulate DOFIs will help to drive shonky foreign insurers out of the market, “our concern is that many of the foreign insurers who have sold their products into the Australian market through brokers are large and reputable companies providing a valuable service”.

He says the last time the market went super hard, in 2001, local insurers “restricted the availability of some specialist cover or made it prohibitively expensive”.

“The only way some people could access the insurance they needed was through DOFIs,” he told Sunrise Exchange News.

There will be exemptions, however, and NIBA is expected to battle hard to keep them good and wide. Mr Pettersen says the Government “has indicated a willingness to work with NIBA and other parties to establish a realistic system”.

He also queried the Government’s intention to have the legislation in force by July 1 2008. “The APRA licensing system is complex and time-consuming, and we doubt if that deadline will be achieved.”

Insurance Council of Australia GM Communications Paul Giles told Sunrise Exchange News the industry believes “it is important for all insurers to be regulated in the same manner”.

“The Insurance Council looks forward to working with the Government on how the exemptions will pan out.”