The insurance market in Australia can be broadly divided into the following segments:
- General insurers and reinsurers authorised and regulated by the Australian Prudential Regulation Authority (APRA). In this segment are also Lloyds’ underwriters.
- Life insurers and reinsurers authorised and regulated by APRA.
- Private health insurers providing private health insurance cover.
- Insurance intermediaries (insurance brokers, agents and financial product advisers), generally regulated by the Australian Securities and Investments Commission (ASIC).
General Insurers: The general insurance market continues to consolidate with a steady decline in the number of licensed insurers and reinsurers and an increasing concentration in the personal lines and commercial lines markets. However, there continues to be healthy competition evident amongst the insurers (for example, in the personal lines markets challenger brands are successfully securing market share).
Life Insurers: There are 28 registered life insurers, of which seven are reinsurers (as at 30 June 2014). For the year ending 31 March 2015, total revenue was AUD55.8 billion, with life insurers experiencing net profit of AUD2.6 billion (up 29.7%) since last year. Over the past two to three years, life insurers (and, in particular, reinsurers) have experienced significant losses in the life risk market. These losses have arisen primarily due to significantly more claims being made against covers providing for Total and Permanent Disability (TPD) and Income Protection (IP).
Private Health Insurance: As at 1’st July 2015, APRA will assume prudential supervision of the private health insurance sector.
Reinsurance: General and life reinsurers authorised in Australia are also regulated by APRA. For the most part, these are either local branches or subsidiary companies of international reinsurers.
Australia has a federal system of government made up of the Commonwealth government on the one hand and the state and territory governments on the other. The Commonwealth government derives its law making power from the Australian Constitution, and is empowered to regulate insurance (other than state insurance) under section 51 (xiv) of the Australian Constitution. Therefore, most legislation regulating insurance business in Australia is Commonwealth based (Cth) unless the insurance business is state insurance and regulated exclusively by state law. The insurance industry is generally regulated by reference to the type of insurance business so that general insurers, life insurers and private health insurers are all separately licensed or authorised.
The following legislation applies to insurance and reinsurance:
Insurance Act 1973 (Cth) and Insurance Regulations 2002 provide the framework for the authorisation and prudential regulation of general insurance business (including general reinsurance).
Life Insurance Act 1995 (Cth) and Life Insurance Regulations 1995 provide the framework for the registration and prudential regulation of life insurance and life reinsurance business.
Insurance Contracts Act 1984 (Cth) and Insurance Contracts Regulations 1995 regulate certain contracts (and proposed contracts) of insurance by modifying and supplementing the common law. The Insurance Contracts Act is designed to provide consumer protection by modifying the law so that a fair balance is struck between insurers, insureds and other members of the public.
Marine Insurance Act 1909 (Cth) regulates the provision of marine insurance.
Corporations Act 2001 (Cth) and Corporations Regulations 2001 regulate companies in Australia as well as financial services and markets. Chapter 7 of the Corporations Act contains licensing, disclosure and conduct requirements for the provision of financial services (which includes general and life insurance products and services but not reinsurance).
Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) also contains significant consumer protections and prohibits misleading and deceptive conduct and unconscionable conduct on the part of financial service providers.
Insurance Acquisitions and Takeovers Act 1991 (Cth) regulates changes in the control of authorised general insurers or registered life insurers, through a mandated approval process. Similarly, the Financial Sector (Shareholdings) Act 1998 (Cth) and Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth) regulate the shareholding of financial services entities such as banks and insurance companies.
Health Insurance Act 1973 (Cth) establishes Medicare, which provides a basic medical insurance safety net for public medical care in Australia. The Private Health Insurance Act 2007 (Cth) regulates the conduct of private health insurance businesses and provides for the registration and prudential management of private health insurers in Australia.
There are also two relevant self-regulatory codes of practice:
- General Insurance Code of Practice applies to general insurers and provides standards of conduct in relation to many aspects of their relationship with customers. A new Code came into effect on 1 July 2014, with all Code participants requiring to be compliant by 1 July 2015.
- Insurance Brokers’ Code of Practice applies to insurance and associated services provided by insurance brokers who are members of the National Insurance Brokers Association (NIBA).