Insurers are concerned about further regulation of product design and distribution and increased powers for the two industry regulators, according to the Insurance Council of Australia (ICA).

ICA’s response to the Financial System Inquiry says the final report is positive overall, but members question why the Australian Securities and Investments Commission (ASIC) should be able to ban products or require changes to marketing, warnings to consumers and distribution restrictions without a suspected breach of the law.

Although this would enable ASIC to act quickly, ICA says the proposal is intended for financial products other than general insurance.

It says it has set up a disclosure taskforce to work on improving guidance and disclosure, while noting insurers have obligations under the Corporations Act and the Insurance Contracts Act.

“The disclosure taskforce will consider the effectiveness and role of mandated disclosure within the context of the broader consumer experience, such as the provision of advice, advertising, financial literacy and consumer risk assessment tools and aids.”

ICA also questions why the Australian Prudential Regulation Authority (APRA) should get stronger crisis management powers, saying insurers pose little risk to the stability of the financial system.

Insurers are concerned about APRA having greater powers without adequate safeguards.

ICA says a stronger position should be taken against unauthorised foreign insurers (UFIs), due to “the unintended consequences of placing Australian-licensed insurers at a competitive disadvantage to insurers domiciled in jurisdictions with weak or less-developed regulation, and potentially lower and more remote capital requirements”.

It argues UFIs are unlikely to improve affordability in north Queensland, where pricing is influenced by cyclones, but will gain access to the national market and could undermine the economic viability of local insurers.

ASIC will not be able to ensure UFIs provide adequate disclosure, and policyholders will not have access to the General Insurance Code of Practice or Financial Ombudsman Service.

ICA says regulators should give the industry more time to implement complex regulatory change, with a transition period of one to two years and longer for more complex issues.

It calls for a comprehensive review of the way general advice is regulated, saying insurer staff must focus on phrasing information to remain within the definition of an advice model rather than delivering information consumers want and need.