The Australian Prudential Regulation Authority (APRA) issued a warning urging consumers to exercise caution before entering into insurance policies with unauthorised foreign insurers.
APRA is concerned that, in an environment where insurance costs have increased, consumers seeking to obtain lower priced insurance products may look to alternative insurance providers that are not APRA-regulated insurance companies, without fully understanding the implications of doing so.
General Insurers authorised to conduct business in Australia must comply with the Insurance Act 1973, and are subject to prudential supervision by APRA. The Australian regulatory regime requires that such Australian licensed general insurance companies are required to hold capital reserves sufficient to meet their actual and expected claims costs.
Effective from 1 July 2002, changes in the Insurance Act will mandate that authorised general insurance companies further strengthen their capital reserves, and that the valuation of assets and liabilities of the insurer are expertly assessed.
Consumers need to be aware that unauthorised foreign insurers are not prudentially regulated in Australia. They are subject only to the regulation and controls applicable in the country in which they are licensed or registered.
Current legislation does allow insurance brokers or registered foreign insurance agents to offer or provide consumers with access to insurance products sourced from unauthorised foreign insurers. In these instances legislation also requires that the insurance broker or foreign agent provide the consumer with appropriate notification and disclosure regarding the placement of business with an unauthorised foreign insurers.
When dealing with an unauthorised foreign insurers, consumers need to satisfy themselves that the entity they are dealing with has sufficient financial strength not only to pay claims today, but also into the future. This is particularly relevant when considering the purchase of 'long tail' insurance products, such as public liability or professional indemnity classes, where any claim may not be settled for years to come.
Consumers should also check their policy to determine which legal jurisdiction will apply in the event of any claims or settlement disputes. There may be difficulties involved in enforcing your rights in an overseas jurisdiction.
In addition, consumers need to be aware that currently they may not have the protection afforded by low-cost consumer complaints resolution schemes operating in Australia. As a result, any dispute about a claim under a consumer's policy may be more difficult, time-consuming and costly to resolve.
[Note: The new Financial Services Reform Act (FSRA) administered by the Australian Securities and Investments Commission (ASIC), may require Unauthorised foreign insurers to obtain an Australian Financial Services licence and comply with other obligations, such as the issuance of product disclosure statements and ensuring that they have appropriate dispute resolution systems in place.
Under FSRA, existing insurers and insurance intermediaries will generally have up to 11 March 2004 to adopt the new licensing and product-disclosure regime.]
A list of all companies authorised to conduct insurance business in Australia appears on APRAs website at www.apra.gov.au. APRAs call centre on 1300 131060 can answer queries about the license status of individual companies.
Further information on laws administered by ASIC is available from the ASIC website at www.asic.gov.au.
Note to Editors
: Please also refer to APRA Media Release date 15/4/02 titled "APRA stops operations of unauthorised foreign insurer"
