aon by NiceTime


ABN 17 000 434 720 AFSL NO 241141

ABN 79 003 026 668 AFSL NO 246797


Dated: 22 February 2006

Contact: Bill Peck, General Manager Risk & Compliance (

Aon Australia Response to Treasury on DMF & DOFI Paper        1
 No                     Question                                                                                   Aon’s Response

1.      Treasury invites comments on                     Yes, the objectives of the review recommendations are appropriate. Particularly the focus should be on policy holder protection
        whether the objectives of the review             in relation to foreign insurers operating out of less stringent regulatory jurisdictions who are being promoted to, or used by, less
        recommendations are appropriate.                 sophisticated insureds such as ‘retail clients’ as defined in the FSR legislation.

2.      If the objectives are appropriate, are           In principle they are although much will rest on what is the meanings attributed to ‘marketing insurance’ – see comments below.
        the review recommendations the best
        means of achieving the objectives?

3.      What will be the implications for the            Provided that the implementation does not restrict the use of DOFIs to meet the particular needs of larger corporate clients and
        supply of insurance in Australia of              their brokers there will be minimal impact on the ‘availability’ of cover for Australian insurance buyers. This will depend largely on
        implementing the recommendations?                the meaning attributed to ‘marketing insurance’.

                                                         While products and facilities insured by insurers operating out of less stringent regulatory jurisdictions continue to be promoted
                                                         they are relatively few in number and, in our experience, alternative markets are available supported by APRA approved insurers
                                                         or insurers operating from what we believe will be comparable prudential regimes (CPR).

4.      Are the proposed amendments to the               We are not sure.
        Insurance Act to capture DOFIs
        marketing insurance in Australia the             One difficulty we see arising is that the new definitions of marketing insurance and carrying on insurance business may extend
        most effective means of implementing             further than we believe is intended. It may prove virtually impossible to draft them to catch what you intend while not regulating
        the recommendation?                              insurance used by sophisticated corporates who do not need policyholder protection.

                                                         For example, for larger (i.e. above SME in size) corporate clients we will procure offers from eg S&P/AM Best rated DOFIs that
5.      Will the proposed extension of                   do not operate out of a CPR. Occasionally representatives from that DOFI may visit Australia and talk to their insureds and we
        ‘insurance business’ capture all                 may introduce them to other potential insureds who we believe have insurance needs that could be well met by that DOFI. All
        DOFIs?                                           premium payments to and claims payments from that DOFI would come through Aon in our role as broker (ie the client’s agent).

Aon Australia Response to Treasury on DMF & DOFI Paper                                                 2
 No                     Question                                                                                  Aon’s Response

                                                         These activities might be caught by your proposed ‘marketing insurance’ and ‘insurance business’ meanings and if so, would
6.      Will the proposed extension capture
                                                         have an unnecessarily adverse affect on insurance availability and/or current practices in the corporate insured market.
        activities or entities that should not be
                                                         If the stated objectives are to be met (ie appropriate policyholder protection with minimal market disruption) then it may be
                                                         appropriate to exclude the application of these changes for insurance used by wholesale clients as defined in the FSR
                                                         legislation. (The relevant definition is the size based one not the more restricted product based definition used for general
                                                         insurance disclosure requirements.)

                                                         Equally important is that the changes catch the promotion of any foreign insurers operating out of less stringent regulatory
                                                         jurisdictions to (less sophisticated) retail clients. In some cases this type of insurance is being offered and provided through a
                                                         more traditional facility/agency that would be caught by the proposed amendments. However there are other cases where the
                                                         arrangement appears much looser and may not be caught, although it will always involve a local insurance intermediary such as
                                                         a broker (who we believe will all be licensed or authorised representatives under FSR).

                                                         In our view the best and simplest approach would be:

                                                             A DOFI that does not operate from a CPR cannot insure risks of Australian retail clients (within FSR meaning).

                                                             An Australian intermediary cannot promote to, or arrange insurance for, a retail client with a DOFI unless it operates from a

                                                             No restriction on arranging insurance for wholesale clients with a DOFI that does not operate from a CPR. There may be
                                                             good reasons (ie promotion of the strength of Australian insureds and prudential regulation) for requiring any intermediary
                                                             involved to provide a warning to the effect the insurer is not APRA authorised or operating from a CPR and advising whether
                                                             it is or is not rated by eg S&P or AM Best.

                                                         We would be happy to meet with you to illustrate our concerns and expand our views.

7.      Is the definition of what is taken to            This is a legal issue we are not competent to respond to.
        occur ‘in Australia’ enforceable?

8.      Would these proposed amendments                  Yes, we suspect so. Paragraph 40 would seem to mean that agents carrying on those functions would need to be licensed by
        have unintended implications for                 APRA. This seems nonsensical where they are doing it for APRA approved insurers or insurers operating out of a CPR as the

Aon Australia Response to Treasury on DMF & DOFI Paper                                                3
 No                     Question                                                                                  Aon’s Response

        currently authorised insurers,                   whole purpose of this proposal is surely not to impose additional legislative burdens except in relation to insurance being
        including subsidiaries and branches?             provided by insurers operating out of non CPRs. There are certainly cases where APRA and other insurers outsource some of
                                                         these functions.

                                                         We would have thought that you only need to capture these outsourced functions and the agents who carry them on where they
                                                         are being carried on by foreign insurers operating out of less stringent regulatory jurisdictions to (less sophisticated).

9.      Are there alternative means of                   See above.
        extending prudential regulation to
        DOFIs marketing insurance in

10.     Are these conditions appropriate for             Yes
        DOFIs seeking to obtain an exemption
        from the Insurance Act?

11.     Are any further conditions necessary             An additional condition could be considered to the effect that the DOFI must hold a minimum rating from a recognized rating
        to effectively implement the review’s            agency. We suspect that most respectable insurers would qualify – the only companies that would not would be start up
        recommendations?                                 companies as the agencies typically want to see a couple of years track record before they will provide a rating.

                                                         Such an additional condition would arguably reduce the moral hazard for Australian regulators in approving a CPR and reflects
                                                         the practice of major global brokers in approving insurers. For example, in approving insurers who we are prepared to deal with,
                                                         Aon takes both the regulatory regime and the rating into account. While lack of a rating is not necessarily fatal if the company is
                                                         operating out of a country with a strong prudential regime, we require additional disclosures be made clients where we approve
                                                         the unrated insurer.

12.     Do the proposed criteria to determine            We believe so.
        the eligibility of an overseas regime
        provide sufficient certainty that the
        DOFI is appropriately regulated
        without requiring APRA to conduct an

Aon Australia Response to Treasury on DMF & DOFI Paper                                                4
 No                     Question                                                                                 Aon’s Response

        exhaustive examination of the DOFI,
        its home regime and its prudential

13.     Are there other criteria that ought to           None that occurs to us.
        be considered when determining a
        ‘comparable regime’?

14.     Are there any concerns with this                 None that occurs to us.
        possible mechanism or process for
        obtaining an exemption?

15.     Are there any preferred options?                 None that occurs to us.

16.     What type of data should be collected            GWP totals by class and geographic spread including specifically Australia.
        from exempt DOFIs to inform
        understanding on their role in the
        insurance market?

17.     Should offshore captive insurers be              As a matter of principle, offshore and domestic captive insurers should be on a level playing field when it comes to the
        exempt from the requirements of the              requirements of the Insurance Act.
        Insurance Act, in line with the current
        proposals to exempt domestic                     Treasury and APRA in their discussion paper on exempting captives from prudential regulation on 23 February 2005 agree in
        captives?                                        principle that captive insurance arrangements are more akin to self-insurance than commercial insurance arrangement, hence
                                                         the rationale for exempting captive insurers from the current prudential regulatory regime is appropriate. However, industry
                                                         participants such as professional captive managers and captive owners agreed that the APRA proposal for exemption of
                                                         captives from prudential regulation was not practical as it would exclude 99% of all captives from obtaining an exemption based
                                                         on APRA’s proposed criteria.

Aon Australia Response to Treasury on DMF & DOFI Paper                                                5
 No                     Question                                                                                    Aon’s Response

18.     What would be the appropriate criteria           Exemption eligibility criteria in APRA’s paper are too restrictive and we believe there would not be many Australian owned
        for a captive insurer to qualify for an          captives that would fit the criteria. Following are our suggestions for appropriate criteria to qualify for an exemption following
        exemption from prudential regulation?            APRA’s proposal in their 23 February 2005 paper:

                                                             Criteria 1 – ownership of a captive as outlined in APRA’s discussion paper

                                                             Criteria 2 - The criteria to be able to insure wholly-owned subsidiaries of the group only appears to be too restrictive and
                                                             should be broadened to fall in line with the Corporations Act in terms of the definition of what constitutes the parent company
                                                             and related entities.

                                                             Criteria 3 – The restriction of not being able to insure any third party components (including assigned beneficiaries) is too far
                                                             reaching and does not reflect commercial reality. Rather there should be certain disclosure requirements met to fully inform
                                                             third party beneficiaries of the involvement of a captive insurer.

                                                             Criteria 4 – The restriction to statutory classes should only apply to Australian business, as other jurisdictions allow captives
                                                             to participate or underwrite statutory insurance classes.

                                                             Criteria 5 – Reinsurance restrictions should not extend to pure fronting arrangements, where a captive reinsures risks in
                                                             compliance with Criteria 2 from an insurer that issues primary cover in countries where the captive itself is not licensed and
                                                             where non-admitted insurance is prohibited. Hence, the captive only uses a local insurer to comply with laws and regulations
                                                             and then reinsures 100% of the risks of its sister and/or related companies in accordance with the definition in Criteria 2.

                                                             Criteria 6 – This links to Criteria 3 above and as the criteria of protecting third party beneficiaries under insurance contracts
                                                             issued by captives seems to be one of APRA’s main concerns, we suggest APRA as part of their overall consideration to
                                                             exempt a captive from prudential regulation and potentially associated capital and other requirements, consider a deposit
                                                             protection scheme. APRA could consider imposing to a captive to deposit with APRA an irrevocable Letter of Credit (LOC)
                                                             issued by an APRA regulated ADI as a requirement to get an exemption from prudential regulation.

                                                         This would ensure consumer protection through APRA’s access to the LOC, should the need arise. At the same time such a
                                                         solution would also benefit captives, as the estimated cost for the LOC would be far below the costs of compliance and capital
                                                         under the current prudential requirements.

19.     Should criteria for eligibility vary             In principle not, however, it would be difficult to monitor compliance with eligibility criteria for offshore domiciled captives.
        between domestic and offshore

Aon Australia Response to Treasury on DMF & DOFI Paper                                                  6
 No                     Question                                                                                 Aon’s Response

                                                         We suggest consideration of a combination of the following main criteria when granting exemptions from prudential regulation to
                                                         offshore captives:

                                                             Criteria 1 – The restriction to be able to only insure members of the same group of companies as defined by the
                                                             Corporations Act.

                                                             Criteria 2 – The deposit of an irrevocable LOC issued by an APRA regulated ADI to ensure consumer protection and
                                                             potential third party beneficiaries under insurance contracts issued in Australia.

                                                             Criteria 3 – The captive should be domiciled in a reputable domicile. We do not think that it would be appropriate to go as far
                                                             as the definition of “domicile with comparable prudential regulation” outlined in APRA’s guidance notes on lenders mortgage
                                                             insurance (AGN 112.2). But an offshore captive should be conducting its business in a domicile with the following institutions
                                                             or service providers present and/or appointed:

                                                                     o   Monetary Authority or Insurance Supervision to oversee captives

                                                                     o   Reputable and Professional Captive Management Firms

                                                                     o   Reputable and Professional Audit Firms

                                                             Reputable and Professional Actuarial Firms

20.     Is there any reason why foreign                  There is no reason as reinsurance is a purely business to business function where both parties are assumed to be commercially
        reinsurers should be caught by the               astute and both are ‘professional insurers’ who well understand counterparty security.
        proposed DOFI regulation regime?

21.     What would be the implications for the           For the calendar year 2005 Aon Re Australia transacted on behalf of insurer clients a total premium volume to global reinsurers
        domestic insurance market if offshore            of $818 million. The following chart shows the domiciles to which this premium was ceded.
        reinsurers (and their brokers and
                                                         AUSTRALIA                   466,535,588               BELGIUM                       3,484
        agents) are forbidden to market
                                                         BERMUDA                     123,943,350               CYPRUS                        1,088
        insurance in Australia unless they are
                                                         DENMARK                           31,671              EIRE                      2,968,490
        domiciled in a comparable regime?
                                                         FRANCE                       25,399,955               GERMANY                   3,999,678

Aon Australia Response to Treasury on DMF & DOFI Paper                                               7
 No                     Question                                                                                  Aon’s Response

                                                         HONG KONG                        26,251                NETHERLANDS         167,302
                                                         NEW ZEALAND                  5,030,811                 PAPUA NEW GUINEA    146,453
                                                         SINGAPORE                   64,781,635                 SPAIN             3,868,315
                                                         SWEDEN                         331,013                 SWITZERLAND       1,729,099
                                                         U.S.A.                       2,911,020                 UNITED KINGDOM   55,996,396
                                                         Lloyd’s                     60,385,832

                                                         TOTAL                      818,257,431

                                                         Clearly, this premium generates substantial amounts of capacity for domestic insurers and almost half of the reinsurance
                                                         transacted would be ceded to non-APRA authorised entities. This would be extremely difficult to replace.

                                                         Many overseas regulatory regimes, i.e., Bermuda, may not compare to that of APRA. However, insurers and reinsurers
                                                         operating from Bermuda have to be rated by either Standard and Poor's or Best's in order to transact business and many of them
                                                         are also subject to regulation under the Securities and Exchange Commission in the USA.

                                                         If we had to replace capacity provided to insurers in Australia as a result of certain overseas markets being disallowed, this could
                                                         create the following unintended consequences:

                                                             A general downgrading of security protecting Australian insurance company balance sheets.

                                                             A substantial increase in premium paid to attract capacity, as supply would be limited. This would then flow onto the general
                                                             public in terms of rate increases for general insurance.

                                                             A substantial increase in concentration risk to counterparties.

                                                             Not enough cover being available therefore impairing the capital adequacy of Australian insurers.

                                                             Domestic Insurers would not have the benefit of specialist Reinsurers providing expertise and capacity for classes such as
                                                             Accident & Health , Aviation, Marine etc where the Australian market is relatively small.

Aon Australia Response to Treasury on DMF & DOFI Paper                                                8
 No                     Question                                                                                   Aon’s Response

22.     Is this approach consistent with the             It is not consistent. Some options are:
        international treatment of reinsurers?
                                                              Require overseas (non CPR) reinsurers to put up letters of credit or financial cash reserves for outstanding liabilities at the
                                                              end of each year. This would be consistent with US practice.

                                                              Require a difference in the investment risk capital charge whereby locally authorised reinsurers and reinsurers from a CPR
                                                              attract a lower risk charge than other foreign reinsurers. This is as set out in the actuarial guidance note GGN110.4 –
                                                              Investment Risk Capital Charge.

23.     What are the incentives for insurers to          Less restrictive MCR (look at recent Swiss Re and Munich Re activity).
        move offshore once established in
        Australia should the DOFI
        recommendations be implemented?

24.     Is it appropriate to introduce barriers          No
        to a DOFI writing insurance business
        in Australia if APRA is satisfied it is
        comparably regulated in its home

25.     What would be an appropriate market              This should be calculated over a reasonable period of time to take the volatility out of premium movements associated with
        significance test?                               market cycles and insurers’ individual marketing strategies. Could have a dual market significance test based on market share
                                                         and premium throughput.

26.     Should a market significance test vary           Yes, but perhaps over 2 criteria, overall share and individual product market share.
        by class of business (to reflect
        different market shares being
        ‘significant’ depending on market
        concentration and average premium

Aon Australia Response to Treasury on DMF & DOFI Paper                                                 9
 No                     Question                                                                                  Aon’s Response


27.     How should the business written in               Need to consider transition and logistical issues. They should be allowed a reasonable period of time to become authorised or
        Australia by a DOFI that had been                cease writing business.
        exempt but is then required to become
        authorised be treated? Should such
        business be APRA-regulated?

28.     Alternatively, how should the business           Treated as any other DOFI in a CPR or otherwise.
        of an authorised insurer that reduces
        its market significance and becomes a
        DOFI operating from its home regime
        be treated?

29.     Does the complexity of designing and             As long as a reasonable period of time is utilised to assist with transitionary issues, then this should be manageable.
        managing the market significance test,
        both for APRA and the insurer,
        outweigh any benefits it may have for
        Australian policyholders?

30.     Are these options sufficient for                 Not sure.
        managing the Australian business of
        an insurer seeking to move offshore?

31.     Is there any reason to restrict to               Do not think so.
        general insurers those insurers to
        which business is transferred under
        the first option?

Aon Australia Response to Treasury on DMF & DOFI Paper                                               10
 No                     Question                                                                               Aon’s Response

32.     Are there particular risks for Australian        None that we can think of.
        policyholders that need to be

33.     If so, what alternative mechanisms               N/a
        would best address these concerns?

34.     Implementing the review                          This is a legal question we do not feel competent to comment on.
        recommendations for DOFIs raises a
        number of issues in terms of
        interpreting each of the criteria
        involved. Issues for resolution
        •   Defining ‘marketing insurance’ in
        •   Eligibility for and assessment of
            the exemption for comparable
        •   Data to be collected from DOFIs
        •   Other possible exemptions for
        •   Determining and implementing the
            ‘market significance test’;
        •   Transitional issues for offshore
            insurers seeking or revoking
        •   Appropriate enforcement powers
            for APRA; and
        •   Any need for additional consumer
            protection measures to be placed
            on exempt DOFIs and their

Aon Australia Response to Treasury on DMF & DOFI Paper                                             11
 No                     Question                                                                                  Aon’s Response


35.     The existing Insurance Act would                 This is a legal question we do not feel competent to comment on.
        require a number of changes to
        capture all insurers marketing
        insurance in Australia and to clarify
        the activities captured by the definition
        of ‘insurance business in Australia’.

36.     Implementation of the                            The issue is that the disclosure requirements under FSR only apply in the context of general insurance to retail clients who are
        recommendations would require that               buying specified products (mainly personal lines). This means that they do not apply to SMEs or a majority of the insurance
        insurers ‘marketing insurance’ in                product offerings involving insurers operating from jurisdictions that are not likely to be a CPR.
        Australia, as opposed to the current
        ‘carrying on insurance business’ in              And in our view what Corporations Regulation 7.9.15 requires hardly qualifies as ‘information’. It says what the insurer is not but
        Australia, be subject to the Insurance           leaves the insured to ‘consider obtaining further information’. This follows the regime that used to exist under the Insurance
        Act. This implies a broadening of the            Agents and Brokers Act. Neither qualifies as meaningful policyholder protection. The types of insureds who are being offered
        scope of the Act.                                products insured by DOFIs operating from jurisdictions that are not likely to be a CPR are not at all sophisticated and probably
                                                         incapable of assessing the meaning of the ‘information’. And they are certainly not going to be capable of obtaining further
                                                         information! So if we are going to use disclosure to help policy holder protection let’s make sure it’s information capable of being
                                                         understood by, and useful to, a typical policyholder and not a backside protection for intermediaries!

                                                         If we move to a regime where only DOFIs operating from a CPR can insure Australian insureds then arguably no disclosure
                                                         should be required as the policy holder protection (between APRA authorised and an insurer licensed in a CPR) should be
                                                         largely the same (and the differences are too hard to explain meaningfully to SME insureds).

37.     The review did not proposed                      As we have indicated above, we do not believe that this proposal should apply to wholesale clients buying insurance.
        extending the regime to situations
        where Australian consumers sought
        out and bought insurance directly from
        foreign insurers (over the internet, for
        example) where those insurers did not
        seek to market their products in
        Australia, directly or through agents or

Aon Australia Response to Treasury on DMF & DOFI Paper                                               12
 No                     Question                                                                              Aon’s Response


38.     That is, the regime would not apply if           None that occurs to us.
        an Australian decided to seek out
        insurance overseas (either in person,
        by telephone or over the internet), but
        would apply if a DOFI targeted
        insurance business in Australia by, for
        example, offering (either directly,
        through agents or brokers, or via the
        internet) insurance to Australians.
        The e-mailing of an offer of insurance
        to Australian sports car owners would
        be considered marketing insurance in

39.     Treasury invites comments on                     The objectives of the review recommendations are appropriate and Aon support the recommendations.
        whether the objectives of the review
        recommendations are appropriate.

40.     If the objectives are appropriate, is            Yes, implementation of the recommendations in a defined timeframe is the best means of achieving the desired outcome.
        implementation of the
        recommendations the best means of
        achieving the objectives?

41.     What will be the implications of the             We do not expect any negative implications from the implementation of the recommendations but better consumer protection.
        recommendations on the supply of
        insurance and insurance-like products
        in Australia?

Aon Australia Response to Treasury on DMF & DOFI Paper                                            13
 No                     Question                                                                                  Aon’s Response

42.     Would any of these definitions capture           We consider the definition along the lines mentioned in Paragraph 131 the most appropriate, as it would capture all insurance-
        the full range of discretionary                  like products.
        insurance-like products provided by

43.     What alternative definitions could be            N/a

44.     Are there any unintended                         N/a
        consequences from any of these

45.     Is this an appropriate interpretation of         Yes, we believe your interpretation captures both the contingent risk of insufficient funds in the member’s pool plus the
        contingent risk facing DMFs and their            contingent risk of not having enough cover (limit) for the whole structure.

46.     Is another interpretation more                   N/a

47.     Are such criteria necessary to ensure            From our experience most participants/members of DMFs would fall within the definition of retail clients and as such consumer
        effective risk management by the                 protection concerns might be the ultimate goal of potential regulation or rules applying to DMFs. If this were the case then the
        DMF? Are there alternatives?                     criteria or rules mentioned in paragraph 158 are sensible and appropriate.

48.     If they are necessary, how can they              Refer to our answer to question 47 re necessity of such criteria. Definitions do not need to be complicated to be both practical
        be defined so as to be both practical            and effective, i.e. they could include the following:
        and effective?
                                                               The pool to be fully funded without contingent risk meaning:

Aon Australia Response to Treasury on DMF & DOFI Paper                                               14
 No                     Question                                                                                  Aon’s Response

                                                                     o   If the retention of the pool is $1m aggregate per annum then it needs to be funded with $1m.

                                                                     o   Top up insurance cover needs to be on a per event and annual aggregate basis, with an automatic drop down
                                                                         clause when member pool is exhausted.

                                                             Top up insurer to be APRA regulated or approved to fall within APRA’s definition of meeting the “comparable prudential
                                                             regulation” domicile standard.

                                                             Agreed documented claims co-operation and claims handling procedures in place to provide for the DMF’s exercise of
                                                             discretion not to be compromised.

                                                             Wind-up and annual fund release provisions to be prescribed, i.e. surplus funds from one fund year can only be released
                                                             back to members or reallocated into new fund year when all claims are closed and no outstanding liabilities.

                                                             Prescribed requirements of DMF constitution and disclosure to members.

49.     Given the complexity of such criteria,           We believe that there would be a few DMFs currently qualifying for an exemption. From our experience the majority would
        will any DMF qualify for exemption?              probably not quite meet the “fully funded” test, as it would appear “fully funded” is often interpreted more loosely in the market

50.     Would the costs of determining,                  Aon cannot answer this question, as we do not know the extent of the benefits of DMFs to the community.
        enforcing and complying with the
        exemption criteria outweigh any
        benefits to the community overall from
        regulating DMFs?

51.     Would self-assessment provide                    Aon would welcome that APRA is given the powers to formally assess and grant exemptions.
        sufficient integrity for the successful
        implementation of the DMF regulatory

Aon Australia Response to Treasury on DMF & DOFI Paper                                               15
 No                     Question                                                                                Aon’s Response

52.     Is there any particular data that would          We would see the collection of data to supplement APRA’s National Claims and Policy Database (NCPD) as one of the main
        be useful in the consideration of DMFs           benefits of collecting data from DMFs as they are mainly used to fund for Liability risks.
        and their role in the Australian

53.     What transitional arrangements will be           Aon concurs with the view that a transition period will be required and 2 years seems a sensible and appropriate time frame to
        required to allow DMFs to adjust to              allow DMFs to rearrange their business to new regulation.
        the new prudential regime?

54.     How is the wind-down of a DMF’s                  One option might be to impose on operators and service providers to register an existing DMF with APRA under new legislation
        business best managed, given that it             and impose a two-year transition to comply with new regulation. Penalties for failing to register might be considered.
        is currently not regulated by APRA?

55.     Does APRA require enhanced                       This would seem appropriate.
        enforcement and investigative powers
        to establish whether the nature of a
        DMF’s operations is such as to require
        authorisation under the Insurance

56.     Are additional disclosure requirements           Current requirements are adequate, however, it should be considered whether disclosure to members should include information
        required for DMFs or are current                 about the insurer(s) providing excess and aggregate cover. In addition there should be clear disclosure of any remuneration
        requirements adequate?                           earned by the manager including for arranging reinsurance.

57.     Treasury invites comments on which               If it is considered appropriate that DMF members should have the protection provided under the ICA then the DMF should be
        consumer protection provisions                   required to issue the cover as an insurance policy (i.e. same approach as taken in the Medical Indemnity (Prudential Supervision
        applicable to insurance products                 and Product Standards) legislation)
        under the Insurance Contracts Act
        should also apply to DMFs exempt

Aon Australia Response to Treasury on DMF & DOFI Paper                                             16
 No                     Question                                                        Aon’s Response

        from prudential regulation.

58.     Given that the application of the                See above.
        Insurance Contracts Act hinges on the
        existence of a contract of insurance,
        how should such a provision be
        applied to DMFs?

59.     On approach for the granting of                  None that occurs to us.
        exemption would be to amend section
        7 of the Insurance Act to allow APRA
        to make a determination to exempt a
        DOFI from some or all parts of the
        Insurance Act where APRA considers
        the overseas regime to be
        comparable, based on the broad
        principles outlined above.

Aon Australia Response to Treasury on DMF & DOFI Paper                             17

To top