The federal government risks leaving Australian households desperate for insurance in a legal lurch if they use brokers to buy cover from foreign insurers, and companies fail to pay out claims, warned one of the country's biggest insurers.
Australians struggling to secure insurance across natural disaster-ridden areas such as North Queensland may not be able to sue their brokers in the event that their insurers fail. That is a warning from a large listed Australian insurance company in response to the Federal Government's decision to allow unregulated foreign insurers to sell home cover in areas where prices are deemed to be too high.
"The PI [professional indemnity] cover only extends to the activities performed by the broker [such as] recommending and advising on particular insurance policies. The PI cover will not extend to issues with the insurance policy itself or the lack of performance of the insurer," the company asserted in a briefing note to members of parliament.
"Therefore, consumers will not be able to seek redress from the broker's PI cover for the failure of a UFI to meet the obligations within the insurance policy," it said.
Labor senator Sam Dastyari said Australia's the protections in place were there for a reason after the collapse of insurer HIH in 2001.
"What is the point of having a world class regulator in APRA if we are setting a lower standard," Senator Dastyari told The Australian Financial Review.
"Just because you live in a flood-plane doesn't mean you should have second rate protection. There are far too many unintended consequences that haven't been considered - this policy has been rushed, even treasury got their facts wrong on what protections are available."
The minister for finance, Mathias Cormann, said the government was dealing with a situation where too many Australians particularly in North Queensland had zero insurance cover. He also argued it was inaccurate to suggest brokers' indemnity cover would be void if they facilitated a deal from unregulated foreign insurers.
"It is completely false to suggest that such indemnity insurance universally excludes cover for business written through foreign insurers. Brokers writing business through foreign insurers should ensure they have appropriate indemnity cover in place," senator Cormann told the AFR.
"I note that the National Insurance Brokers Association has stated that the Government's approach 'would give brokers the flexibility to determine where the best cover for their clients might come from'," he said.
The insurer's briefing note argued brokers would presumably require consumers to sign a waiver stating they understand the risks of accepting coverage with a UFI.
"This waiver would be a minimum requirement of the broker's PI insurer – assuming the PI insurer would even allow the broker to recommend insurance products issued by a UFI," the company argued.
The Abbott government's latest regulatory changes have shocked the insurance industry, raising the hackles of companies such as Insurance Australia Group and Suncorp.
Mike Wilkins, chief executive of IAG, said earlier this month that the move would put local players at a competitive disadvantage to foreign insurers.
"In terms of allowing unauthorised foreign insurers to come into this jurisdiction, we've got real trouble with that," Mr Wilkins said on Thursday.
"Premiums are a risk signal, and [north Queensland] is prone to cyclones, tropical storms, storm surge and hail. I think the better approach would be to look at how we mitigate that through better building standards, through other things such as levies."
