18. Implementing the review recommendations for DOFIs requires the extension of the scope of the Insurance Act to capture a broader range of activities. DOFIs seeking to market insurance in Australia from comparable prudential regimes may then be exempted from the application of the Act.
19. However, regulating DOFIs raises a number of matters to address, including:
- defining ‘marketing insurance’ in Australia;
- eligibility for and assessment of the exemption for comparable regimes;
- data to be collected from DOFIs;
- other possible exemptions for DOFIs;
- determining and implementing the ‘market significance test’;
- transitional issues for offshore insurers seeking or revoking authorisation;
- appropriate enforcement powers for APRA; and
- any need for additional consumer protection measures to be placed on exempt DOFIs and their intermediaries.
20. In relation to DMFs, implementing the review recommendations would allow DMFs to continue to operate only if they can do so without retaining any contingent risk. DMFs that cannot do so would no longer be permitted to write discretionary cover.
21. Outstanding matters to address before regulating DMFs include:
- a mechanism for prudentially regulating DMFs;
- defining ‘contingent risk’;
- the structure of an exemption for no contingent risk;
- determining eligibility for a no contingent risk exemption;
- data to be collected from DMFs;
- transitional arrangements and APRA enforcement powers; and
- any need for additional consumer protection measures to be placed on exempt DMFs.
22. The focus of the HIH Royal Commission recommendation, the review of DMFs and DOFIs, and this discussion paper is the appropriate prudential and consumer protection regulatory framework for DMFs and DOFIs operating in the Australian market. No examination is conducted or recommendations made in relation to taxation of DMFs and DOFIs.
23. While there are some differences in taxation treatment between DMFs, DOFIs and authorised insurers, it is not appropriate for taxation matters to drive prudential policy.
24. Consistent with the recommendation of the HIH Royal Commissioner, the Treasurer has written to his counterparts in the States and Territories, urging the removal of all State taxes and levies on insurance contracts.
25. The removal of these taxes would allow the more efficient operation of the insurance market.