1.1 Which government bodies/agencies regulate insurance (and reinsurance) companies?
Two government bodies regulate insurance companies in Australia:
- Australian Securities and Investment Commission (ASIC); and
- Australian Prudential Regulation Authority (APRA).
ASIC is responsible for the general administration of the Insurance Contracts Act 1984 (Cth) (ICA), which governs the dealings between insureds and insurers with respect to contracts and proposed contracts of insurance (except for some types of insurance, such as marine and reinsurance contracts). ASIC has the power to:
- obtain insurance documents relating to insurance cover provided, or proposed to be provided, by insurers;
- review insurers’ organisational structure administrative arrangements; and
- intervene in any proceeding relating to a matter arising under the ICA or Part 3 of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003.
APRA is responsible for the general administration of the Insurance Act 1973 (Cth) (Insurance Act) and is the prudential regulator of general insurance business, including reinsurance. The purpose of the Insurance Act is to govern the conduct of insurance business in Australia. APRA has the power to:
- authorise general insurers to carry on general insurance business;
- revoke such authorisation;
- remove a director or senior manager of a general insurer; and
- set prudential standards for general insurers.
1.2 What are the requirements/procedures for setting up a new insurance (or reinsurance) company?
|In Australia, setting up a new insurance or reinsurance company requires authorisation from APRA. Only bodies corporate or Lloyd's underwriters can carry on insurance business in Australia.|
APRA’s Guidelines on Authorisation of General Insurers outlines the requirements for applicants, which include:
- having the capacity and commitment to conduct insurance business on a continuing basis with integrity, prudence and professional skill;
- complying with APRA’s prudential requirements;
- satisfying APRA that its risk management and control framework is adequate;
- satisfying APRA that its information and accounting systems are adequate.
The applicant must also obtain an Australian Financial Services Licence (AFSL) from ASIC in order to offer insurance products in Australia.
1.3 Are foreign insurers able to write business directly or must they write reinsurance of a domestic insurer?
In general, foreign insurers can conduct insurance business in Australia if they have authorisation from APRA or are a Lloyd’s underwriter. In some limited circumstances specified under Part 2 of the Insurance Regulations 2002 authorisation from APRA is not required.
Foreign insurers may seek APRA authorisation by establishing a locally incorporated subsidiary or by obtaining an authority to operate in Australia through a branch (foreign insurer).
1.4 Are there any legal rules that restrict the parties’ freedom of contract by implying extraneous terms into (all or some) contracts of insurance?
The ICA renders void:
- interim contracts of insurance provisions where the liability of the insurer is dependent upon the submission to, or the acceptance by, the insurer of a proposal for a contract of insurance intended to replace the interim contract of insurance (s38);
- arbitration provisions (s43 – unless the agreement to arbitrate was made after the dispute arose);
“other insurance” provisions that have the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance, not being a contract required to be effected by or under a law, including a law of a State or Territory (s45);
- “contracting out” provisions that purport to exclude, restrict or modify, to the prejudice of a person other than the insurer, the operation of the ICA (s52);
- variation of contracts of insurance provisions that authorise or permit the insurer to vary, to the prejudice of a person other than the insurer, the contract (s53); and
- unfair contract terms in all general insurance contracts which were entered into, renewed or varied from 5 April 2021 (s15 and s12BF Australian Securities and Investments Commission Act 2001 (Cth)). Under s12BG, a term of a contract will be unfair if:
- it would cause a significant imbalance in the parties' rights and obligations arising under the contract; and
- it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
The ICA also imposes on insurers and insureds a duty of utmost good faith and disclosure, which are explored further at question 2.5 below.
|Otherwise, there are some complex common law principles of insurance that also confine the parties' freedom of contract, such as the public policy principle of not permitting insureds to benefit from their own criminal misdeeds or contract out of the consequences of their own fraudulent non-disclosure (see for example All Class Insurance Brokers Pty Ltd (In Liq) v Chubb Insurance Australia Ltd (No 2) (2021) 154 ACSR 78;  FCA 782)|
1.5 Are companies permitted to indemnify directors and officers under local company law?
Companies are permitted to indemnify directors and officers under local company law although s199A of the Corporations Act 2001 (Cth) (Corporations Act) prohibits a company from indemnifying:
- a liability owed to the company or a related body corporate (s199A(2)(a);
- a liability for pecuniary penalty order under section 1317G or a compensation order under section 1317H (s199A(2)(b));
- a liability that is owed to someone other than the company or a related body corporate and did not arise out of conduct in good faith (s199A(2)(c)); and
- legal costs of defending an action for a liability incurred as an officer or auditor of the company if the costs are incurred in certain circumstances, such as defending or resisting criminal proceedings in which the person is found guilty (see s199A(2) and s199A(3).
|A company must not pay a premium for a contract insuring a person who is an officer or auditor of the company against a liability (other than one for legal costs) arising out of conduct involving a wilful breach of duty in relation to the company or misuse of their position or information (s199B).|