Direct Offshore Foreign Insurers (DOFI) - Regulations commencing 1 July 2008
DOFIs are foreign general insurers currently offering general insurance products to Australians without being authorised in Australia because they are not considered to be “carrying on insurance business in Australia” under the Insurance Act 1973. DMFs provide an insurance like product offering discretionary cover alternatives to insurance. The DMF/DOFI Act and DOFI Regulations came into effect on 1 July 2008.
The Act requires DOFIs to be authorised insurers and subject to Australia’s prudential regime. From 1 July 2008, it will be an offence for a DOFI to carry on insurance business in Australia without being authorised and for an Australian Financial Services Licence (AFSL) holder to deal in general insurance products that are not issued by an authorised insurer or a Lloyd’s underwriter, unless an exemption applies.
The Act introduces a limited exemption mechanism to enable insurance business that cannot be appropriately written in Australia to be supplied by a DOFI.
Part 2 of the Regulations, entitled “Insurance contracts that are not insurance business” provide for three categories of exemption:
- insurance contracts for high valued insureds;
- insurance contracts for atypical risks; and
- insurance contracts for other risks that cannot reasonably be placed in Australia.
- Categories (a) and (c) above involve sub-regulations which cover financial limits and broker enquiry, recording and certification.
- Category (b) above provides, in conjunction with the Act, exemption for the defined atypical risks.
There are 10 atypical risks, meaning contracts of insurance under which the insured is insured against those listed risks.
- Regulation 4C (2) (h) provides as follows:
“liability and expenses arising from a person owning, chartering, managing, operating or being in possession of a vessel other than a pleasure craft (within the meaning given by subsection 9A (2) of the Insurance Contracts Act 1984);”
- Regulation 4C (2) (j) provides as follows:
“loss or liability incidental to a loss or liability mentioned in paragraphs (a) to (i).”
The exemption is broadly drafted and intended to cover the liabilities and expenses covered by P&I clubs and other entities. But the exemption does not extend to pleasure craft as defined in the Insurance Contracts Act 1984. This means that pleasure craft insurances (as defined) are not exempted as atypical risks and are thus subject to the Act as to authorisation of insurers.
This broad exemption for P&I club cover for liabilities and expenses (h), including incidental liabilities (j) was accepted by the Australian Treasury after lengthy consultations with representatives of the International Group of P&I clubs, marine insurance brokers and agents, Australian marine insurers and industry organisations, including Shipping Australia Limited. The ambit of this exemption (including incidental liabilities) will be of practical benefit to foreign insurers who write these classes of marine/P&I cover for Australian insureds.
Ebsworth & Ebsworth (now HWL Ebsworth) represented the International Group of P&I Clubs and also assisted Shipping Australia in submissions to and negotiations with the Australian Treasury. Those submissions and negotiations were greatly facilitated by experienced brokers and others in the marine sector.
Written by Tony Scotford, Consultant
