DOFIs and tax in NIBA sights: Brokers keep up the fight against regulation and imposts
Insurance & Risk Professional, February 2008
When the Rudd Labor Government swept to power in November, it immediately pinned its environmental and social colours to the mast, moving immediately to ratify the Kyoto Protocol and putting an apology to the Stolen Generation back on the agenda.
However, apart from the rolling back of WorkChoices, most commentators were not predicting seismic changes for the business sector. The Labor hierarchy had spent most of the campaign championing their credentials as economic conservatives.
NIBA Chief Executive Noel Pettersen expects the change of government to have little effect on the insurance industry, as Labor has set out its position while in opposition.
“In many contentious areas there has often been bipartisan support, so I don’t foresee any radical change,” he said.
But he concedes the outcome of proposed legislative changes to the regulation of direct offshore foreign insurers (DOFIs) and discretionary mutual funds (DMFs) has become a little more uncertain.
NIBA was anticipating the outcome of legislative changes under the Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Bill 2007, due to come into effect in July this year.
Under the proposed amendments to the Insurance Act, insurers carrying out general insurance business in Australia directly or through a broker must become authorised and regulated by the Australian Prudential Regulatory Authority (APRA), though the proposals provide for some limited exemptions.
NIBA wants the Federal Government to grant exemptions for sophisticated buyers of insurance and hard-to-place risks.Without them, it says, the market faces restricted availability, higher premiums and a lower level of competition in the Australian insurance market.
Finalised exemption regulations had been expected in the new year.
“All that is in limbo,” Mr Pettersen said. “But we’ve had a close working relationship with Treasury officials, who are keen to gain an understanding of how those exemptions can work. We don’t want to impose something that is unworkable and restricts insurance cover.”
NIBA wants insureds with premiums of more than $50,000 to retain the right to satisfy their complex needs overseas. It also wants an exemption for the kind of specialised risk that local authorised insurers won’t cover.
NIBA supports the idea put forward by Treasury that insurance brokers be the assessors for determining eligibility for exemption. Mr Pettersen says brokers are well-placed to be assessors. “They already possess the necessary knowledge, understanding and training to perform the function effectively.”
With regard to DMFs, improved disclosure requirements are proposed – an approach that NIBA supports.
NIBA will also continue to lobby governments on tax.
“We made some ground in Victoria last year when the Victorian Government decided to drop its plans to impose a further fire services levy on businesses insured for more than $50 million,” Mr Pettersen said.
“The issue of tax on insurance still needs to be resolved on a national basis, and we will continue to fight hard on the imposition of taxes that are to the detriment of the insurance buyer.”
The fire services levy is first in NIBA’s crosshairs. It is imposed on property insurance in New South Wales, Victoria and Tasmania, and Mr Pettersen wants it abolished.
“We’ve had an ongoing issue with the fire services levy – we believe it unfairly penalises the prudent. It should be based on housing rates as in Western Australia and South Australia.”
He acknowledges it could be a tough battle to win, describing the levy as a cash cow for the governments of populous NSW and Victoria.
Moving down the “to do” list, Mr Pettersen told Insurance & Risk Professional NIBA will be busy with more promotional activity during the year.
“We want more people to know about the value that insurance brokers bring as the essential third party in the insurance transaction.”
A firming market may soon give brokers the chance to prove just how valuable they are.
“The market will inevitably change, and it will be up to brokers to explain why clients will be paying higher rates again.”