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Mar 2024

What is on the horizon for the Australian insurance industry?

Source: Asia Insurance Review | May 2015

By Ms Tricia Hobson (Partner), Mr Ray Giblett (Partner) and Mr Matt Ellis (Special Counsel), Norton Rose Fulbright

The Australian insurance market received considerable attention in 2014, positively driven by the successful listing of health insurer Medibank Private in October and, on the other hand, the ongoing scrutiny of the life insurance market (particularly financial advisers). 
 
Against that backdrop, we expect the focus in Australia in 2015 to be on improving competition and market conduct rather than any significant reform to prudential regulation.
 
FSI report / LIAWG
The Financial Systems Inquiry final report (Murray Report), released on 7 December 2014, sets out the scope of reforms to the financial services market that will be considered by the Federal Government in 2015. Of the numerous recommendations, those potentially having an impact on the insurance market include:
 
Conduct regulation: with an eye to regulatory developments in the UK and Europe, the Murray report recommends the introduction of a product design and distribution obligation on financial services providers, temporary product intervention powers where there is a significant risk of consumer detriment, better tools to measure insured values, increased powers to address commission and remuneration structures to align the interest of consumers with product providers and the introduction of higher training and competency standards for financial advisers.
 
Market innovation: the Murray report recognises that competition and the success of the market will depend on encouraging innovation, and recommends government and industry co-operation, the removal of regulatory barriers to innovation (including more versatile product disclosure regulations), easier product rationalisation, increasing access to data, and reducing costs in respect of its use.
 
The recent release of the Life Insurance Advice Working Group (LIAWG) Review of Retail Life Insurance Final Report (known as the Trowbridge Report) in March this year continues the scrutiny of adviser commissions and the quality of advice.
 
Prudential regulation
The Murray report generally reflects the common view that the Australian market withstood the global financial crisis because of sound prudential regulation. As such, save for recommendations aimed at improving the capital adequacy of the “Big Four” banks, very little change is envisaged to the existing prudential regulatory regime.
 
However, in a surprising move by a regulator that has set high prudential requirements on market participants, the Australian Prudential Regulation Authority intends to relax licensing requirements to allow unauthorised foreign insurers to enter the home and contents insurance market in far north Queensland. The move is intended to address the lack of competition and affordability in that area caused predominantly by flood and wind risks. This may create significant opportunities for offshore insurers.
 
Access to Justice - Class actions
The Productivity Commission Report into Access to Justice Arrangements in Australia, released on December 3, contains both good and bad news for insurers. The recommendation that contingency fees be allowed for the first time may see an increase in unmeritorious claims. This is exacerbated by the recommendation that restrictions on lawyers’ advertising be abolished.
 
On a more positive note, the Commission also recommended greater regulation of litigation funders, including licensing, disclosure and conflict of interest obligations.
 
FOS terms of reference
New terms of reference have commenced, with effect from 1 January 2015, for the Financial Ombudsman Service (FOS). Among other changes, the jurisdiction of FOS will expand to include small business interruption insurance claims, broking disputes (for claims lodged after 1 January 2016) and uninsured third party motor vehicle disputes.
 
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