The Australian insurance industry is governed by federal law. The key pieces of legislation for both life and non-life insurers are as follows:
- Insurance Act 1973
- Insurance Contracts Act 1984
- Australian Prudential Regulation Authority Act 1998
- Privacy Amendment (Private Sector) Act 2000
- General Insurance Reform Act 2001
- Corporations Act 2001, incorporating the Financial Services Reform Act 2001
- Australian Securities & Investments Commission Act 2001
- Competition and Consumer Act 2010.
The following laws are specific to the non-life sector:
- Marine Insurance Act 1909
- Medical Indemnity Act 2002
- Terrorism Insurance Act 2003
- Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Act 2007
- Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Act 2008
- The Superannuation Guarantee (Administration) Amendment Act 2011.
Australia has two supervisory authorities, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC), both of which were established on 1 July 1998. Both bodies have authority over the entire retail financial sector, comprising deposit-taking institutions, life and non-life insurance companies, friendly societies and superannuation schemes.
APRA is responsible for the licensing and prudential regulation of financial institutions, while ASIC deals with consumer protection issues, such as product disclosure standards, complaints handling, licensing of intermediaries, administering the Insurance Contracts Act and the development of the insurance industry’s code of practice.
The non-life insurance association is the Insurance Council of Australia (ICA), whilst the main association for life and financial service providers is the Investment and Financial Services Association (IFSA).
Admitted / Non-admitted
Unauthorised insurers (known locally as unauthorised foreign insurers or UFIs) are not allowed to carry on insurance business in Australia. At the same time, there is nothing in the law to indicate that insurance must be purchased from locally authorised insurers, with the exception of certain compulsory classes. This is generally interpreted to mean that unauthorised insurers can issue most types of policy from abroad if approached directly by a buyer. In certain circumstances unauthorised insurers may also insure large or complex risks offered to them by Australian insurance brokers. Insurance intermediaries (brokers and agents) have to be authorised to do business in Australia. Insurance intermediaries are not allowed to place Australian business with unauthorised insurers except for large or complex risks, as defined in the legislation.
Unauthorised insurers (known locally as direct offshore foreign insurers or DOFIs) cannot carry on insurance activity in Australia. At the same time, there is nothing in the law which indicates that insurance must be purchased from locally authorised insurers with no exceptions affecting life, pensions or private medical insurance. This is generally interpreted to mean that insurers can issue policies from abroad if approached by a buyer.
Insurance intermediaries are not allowed to place Australian business with unauthorised insurers except for large or complex risks relating to non-life insurance, as defined in the legislation.
The legislation seeks to prevent both the soliciting of life business, and individuals acting as the agent of a person or entity conducting life business, from outside Australia.
- Workers’ compensation
- Motor third party liability for death and bodily injury
- Liability for maritime oil pollution
- Aviation passenger liability
- Satellite launch operators’ liability
- Builders warranty (all states and territories except Tasmania)
- Medical indemnity for medical practitioners (certain states and territories only)
- Professional indemnity for property, stock and business agents (New South Wales only)
- Professional indemnity for tax and business activity statement (BAS) agents
- Professional indemnity and fidelity guarantee for registered liquidators
- Professional indemnity for insurance brokers
- Professional indemnity for other retail Australian financial services licence (AFSL) holders
- Professional indemnity for midwives
- Health insurance for holders of subclass 457 visas and their families
- Clinical trial liability insurance (Victoria and New South Wales)
- Residential strata insurance (property damage and third party liability)
The federal government owns the Export Finance and Insurance Corporation (EFIC) and there are 14 other public sector insurers mainly owned by individual states and territories.
- Workers’ compensation
- Motor third party liability
Domestic reinsurance premium volumes rose strongly from 2008, partly as a reflection of rising catastrophe claims, and partly because of a change in reinsurance regulations which increased the cost of doing business with non-admitted reinsurers. There is now a clear advantage to both cedants and reinsurers in doing business onshore, which has led to an increase in the number of resident reinsurers.
Terrorism reinsurance is provided by a statutory body, the Australian Reinsurance Pool Corporation (ARPC), which commenced operations on 1 July 2003 under the terms of the Terrorism Insurance Act 2003.
Life reinsurers operate in substantially the same regulatory environment as direct insurers for such items as capital, solvency, reserves and taxation.
All health benefits organisations (HBO) reinsure with an industry pool operated by the Private Health Insurance Administrative Council (PHIAC). The aim of the pool is to even out experience between the HBOs since they are required to operate a system of adjusted community rating.
Australia has nine active professional reinsurers which wrote gross premiums of AUD 2.17bn in the year ending 31 December 2011. All reinsurers are of multinational parentage apart from a captive reinsurer owned by a leading domestic insurance group. The reinsurance market is highly concentrated, with the top two reinsurers accounting for 77.3% of gross premiums in 2010-11. Australia has a developed life reinsurance market supplied by five major US and European professional reinsurers.
Personal and commercial lines have very different patterns of distribution: over 70% of commercial business is broker-controlled, whereas nearly 75% of personal lines are sold direct. The Australian life market distribution is dominated by financial advisers categorised according to the extent of their independence from any one insurance company.
Parts of Australia have a moderately high earthquake exposure arising from intra-plate or continental convulsions. In addition to earthquake, the shores of east and north Australia are also exposed to tsunami. Windstorm and the associated effects of rain and hail have been the most destructive perils in Australia. Windstorms come in two varieties – tropical cyclones in the north of the continent and thunderstorms elsewhere. Flooding arises from coastal and inland rivers. Bushfire exposure is gradually increasing.