Who does this affect?

The Assistant Treasurer and Minister for Competition Policy and Consumer Affairs today announced the limited exemption arrangements for direct offshore foreign insurers (“DOFIs”). These arrangements exempt DOFIs in certain limited circumstances from the requirement to become locally authorised insurers from 1 July 2008 in order to operate in the Australian market.

What do you need to do?

For more information, please contact Philip Ward T +61 2 9296 2213.

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Philip Ward  
Partner
T +61 2 9296 2213

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Sydney
Peter Stockdale  

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The Assistant Treasurer and Minister for Competition Policy and Consumer Affairs today announced the limited exemption arrangements for direct offshore foreign insurers (DOFIs). These arrangements exempt DOFIs in certain limited circumstances from the requirement to become locally authorised insurers from 1 July 2008 in order to operate in the Australian market.

From 1 July 2008, under the Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Act 2007 (DOFI Act), a DOFI insuring local risks who acts in Australia through another person or whose product is provided by a broker in Australia, will be required to become locally authorised under the Insurance Act 1973 (Cth) or cease operating locally in this market, in the absence of an available exemption.

Three main exemptions from the requirement for DOFIs to become locally authorised have been announced. Treasury has indicated that draft regulations detailing the exemptions will be released shortly for limited public consultation to ensure that the policy position is implemented as stated in the Assistant Treasurer’s announcement. It is anticipated that the exemptions will take effect from 1 July 2008.

The exemptions are as follows:

High value insureds exemption

A DOFI will fall within the high value insureds exemption if it provides insurance to an insured that has:

• total group gross operating revenue in Australia of $200 million or more
• total group gross assets in Australia of $200 million or more, or
• total group employees in Australia of 500 or more.

The insured and/or their Australian Financial Service Licence (AFSL) holding intermediary will “self-assess” whether it meets one or more of these thresholds, and if it does it can place business with a DOFI without the DOFI being required to become locally authorised.

Atypical risks exemption

A DOFI will fall within the atypical risks exemption for the following insurance lines:

• nuclear
• war
• terrorism
• satellite or space
• biological risk
• medical clinical trials
• aviation liability
• ship owner’s protection and indemnity other than for pleasure crafts.

The insured and/or their AFSL holding intermediary will “self-assess” whether the insured is seeking a policy that corresponds to one or more of the insurance lines above, and if it is, the insured can place that business with a DOFI without the DOFI being required to become locally authorised.

Customised exemption

The customised exemption will be available to a DOFI where an AFSL holding intermediary that represents the insured (ie an insurance broker) assesses and determines that a specific risk cannot be placed with a locally authorised insurer, taking into account the following criteria:

• a lack of market capacity
• a material difference in price
• a difference in non-price terms and conditions bearing a material impact on the business or consumer, and
• material benefits accruing from continuity of an ongoing relationship between a given insurer and the business or consumer.

If the insurance broker is satisfied that the risk cannot be placed with an authorised insurer, the insured can place that business with a DOFI without the DOFI being required to become locally authorised.

A further exemption is available for arrangements with DOFIs that are required by the law of a foreign jurisdiction.