Foreign competition could mean lower premiums
Excessively high insurance premiums in disaster-prone areas such as Far North Queensland may get some relief following a federal government’s decision to allow unregulated foreign insurers to offer cover to Australians.
Brokers would be able to sell policies from foreign insurers from next month.
John Nelson, the chairman of Lloyd’s of London has thrown its support behind a federal government’s decision maintaining increased competition would only improve affordability and drive down premium prices.
Understandably local insurance providers argue that allowing unregulated foreign insurers that are not regulated by the Australian Prudential Regulation Authority to target Australians desperate for cover could leave businesses in the lurch if companies failed to pay out claims.
Last year, finance minister Mathias Cormann announced plans to improve the affordability of the disaster-prone North Queensland market by allowing UFIs to write risk in the local market to deal with a situation where too many Australians had no insurance cover due to the cost of premiums.
The average loss ratio for insurers in cyclone-prone North Queensland was around 140 per cent in 2005 to 2013, and the cost of claims there was 80 per cent higher than those in Brisbane, Sydney and Melbourne after severe catastrophes such as Cyclone Ita, that caused $8.4 billion worth of damage, Cyclone Yasi in 2011 and 2009 floods that trashed affordability in the area.
Mike Wilkins, chief executive of Insurance Australia Group maintains that the move to allow foreign competition would put local companies at a competitive disadvantage to overseas insurers.
Suncorp, the biggest insurer in Queensland, argues that Australia had one of the most well-regulated insurance industries in the world and “we wouldn’t want to jeopardise that”.
