The Senate has recommended lenders’ mortgage insurance (LMI) be made transferable, despite opposition from the industry.

The Senate Economics References Committee says in its latest report that LMI should be made either pro-rata refundable or portable, and “this should be made clear to borrowers”.

It has also recommended instalment payments for LMI rather than an upfront lump sum payment.

According to the report, “Competition within the Australian banking sector”, Federal Treasury is looking at making LMI transferable between lenders, perhaps through a clearing house or a refundable scheme and the Government is also talking to major insurers about the changes.

The move to make LMI transferable has been resisted by the Insurance Council of Australia (ICA) and major provider Genworth Financial, but the report has more submissions in favour of removing the restriction.

Leading the push for change was the Finance Brokers’ Association of Australia, whose President, Peter White, says it’s “an excellent step forward”.

“We are very happy with the result and will be lobbying Treasury to make sure the recommendations happen,” he told insuranceNEWS.com.au. “We will also still work with the Senate on the recommendations.”

The report did accept that the changes would push up costs for the borrower.

“As with exit fees, this would mean those borrowers who stick with their lender will be paying more to assist borrowers who switch lenders,” the report said.

The committee was also concerned there are no product disclosure statements required on LMI sales.

A Genworth spokesman told insuranceNEWS.com.au the company provides a partial refund for up to two years for borrowers who choose to switch or pay out their loans.

“Genworth agrees that more information regarding refunds and LMI should be available for borrowers,” he said. “Genworth and the industry is working through policy options that improve consumer awareness and understanding of LMI and the options available to borrowers.”

The insurer has rejected the Senate’s recommendation that LMI should be payable by instalment, saying this only occurs in the US.

“Genworth believes unintended pricing, regulatory and housing affordability consequences would result from such a potential system overhaul in the Australian market.”

ICA was contacted by insuranceNEWS.com.au for comment but did not respond before our deadline.