The Australian Prudential Regulation Authority (APRA) has stepped-up its campaign to deter small businesses, professional associations and community associations from using unauthorised foreign insurers, and has suggested that brokers who direct them to dud insurers could be taken to court.

While the suggestion is buried well down a media release from APRA, brokers should regard it as a warning that a full explanation to clients really means “full”.

This might suggest that APRA thinks the warnings required of the broker under the Insurance (Agents & Brokers) Act aren’t proving effective enough in deterring the trade, even though the client has to sign a document acknowledging he/she has been warned of the consequences of using an unauthorised foreign insurer.

The regulator can’t do much more than that – at least, not right now. Knowing it’s impossible to stop liability business going overseas when local insurers can’t or won’t provide cover, the regulator is urging buyers to “carefully examine” the details of cover being offered by unauthorised foreign insurers.

If clients hit a brick wall in making a claim, APRA points out that brokers, at least, might be subject to unspecified legal action. “Although policy-holders may be able to resolve disputes with their broker in an Australian court, any action for non-payment or underpayment against the insurer may have to be conducted and any judgement enforced in the insurer’s country of registration.

“In addition, unauthorised foreign insurers may operate from a jurisdiction that does not have the same legal system or regulatory controls as Australia. An unauthorised foreign issuer might subsequently prove unable or unwilling to pay a valid claim and resolving disputes or seeking compensation in a foreign jurisdiction can be slow, complex and costly.”

National Insurance Brokers Association President Frank Earl is one broker who sees the whole picture. He points out that many small business-owners are required to have public liability cover but can’t afford Australian insurers’ “pricey” premiums. While recognising the seriousness of the problem, he says not all unauthorised foreign insurers are bad. What concerns everyone are the “backyard operations” that are unlikely to be able to pay out claims.

APRA says consumers should be aware of the technicalities of the law and that an authorised insurance broker can legally look offshore to fulfil their clients’ insurance needs.

So what’s the solution for APRA? Apart from harassing intermediaries it may feel are getting out of line, the regulator’s hands are tied as long as brokers comply with all the disclosure requirements. It suggests “innovations to help make insurance more accessible and affordable”, including tort law reform, alternative dispute resolution and risk management by policyholders.