The Federal Government will make a minor amendment to the Insurance Regulations to allow brokers to place cover with unauthorised foreign insurers (UFIs) on the basis of price.

The move, announced as part of the Government’s north Queensland initiative, will apply across Australia.

Current regulations restrict brokers to accessing UFIs for commercial policies, mostly for complex risks not handled by Australian insurers. The restrictions include provisions that clients must have operating revenue or assets worth at least $200 million or employ 500 or more people.

Treasury says the amendment will clarify that brokers can gain access to better prices from UFIs.

Insurers have told insuranceNEWS.com.au they are seeking meetings with the Government to express concern that UFIs may target business outside north Queensland, such as high-value homes in Melbourne or Sydney.

Brokers may place risk with a UFI if they cannot reasonably place it locally, but one insurance company spokesman said: “There is no definition of what’s unreasonable. If it relates to the cost of premiums as a percentage of an average, the premiums for houses in some of the wealthier suburbs will be the same as premiums in north Queensland.”

Insurers are also concerned they will be disadvantaged in competing with UFIs that do not have the same consumer protection obligations or regulatory costs.

UFIs are not regulated by the Australian Prudential Regulation Authority (APRA), and Finance Minister Mathias Cormann told the Senate Estimates Committee late last month the responsibility for consumer protection will sit with the broker.

He says brokers are required to tell clients of the risks and be part of the Financial Ombudsman Service (FOS) dispute resolution scheme.

Consumers can only buy insurance from UFIs via brokers, and consumer protections under FOS apply to consumer and broker, instead of the more common dispute involving consumer and insurer.

Senator Cormann says the broker must make a judgement about whether the circumstances justify placing cover with a UFI and “about the quality and integrity across all aspects of the insurance value proposition of the foreign insurer that he has accessed”.

Labor senator Sam Dastyari says since the collapse of HIH Insurance, “we have gone through an incredibly complicated regulatory process” and created a bureaucracy around APRA to ensure insurers “stand up”.

DLA Piper insurance lawyer Sophie Devitt told insuranceNEWS.com.au brokers must be “very diligent” in providing advice to consumers considering buying cover with a UFI.

UFIs are normally used to provide cover to sophisticated buyers with atypical risk, and she says brokers must adopt a higher level of caution if using them for homeowners.

They will have to ensure clients understand the trade-off between dealing with a local insurer regulated in Australia and a UFI, and must be vigilant in documenting their advice.

North Queensland brokers believe their professional indemnity insurers will not permit them to use UFIs.

Director of Tully-based Acme Insurance Brokers Karen Hardy has started a change.org petition to convince Senator Cormann that UFIs are not the answer to the region’s insurance woes.

The first 100 signatures have already been submitted.

“I just felt we had to do something,” she told insuranceNEWS.com.au. “The broking fraternity needs to stand up and be counted. There has to be a local solution.

“Opening our doors in this global economic climate is fraught with danger.”