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Dealing with DOFI's

Gold Seal Risk Management Services Pty Ltd has provided guidelines on dealing with DOFI’s (as per Gold Seal Newsletter, Dealing With DOFI’s, dated August 2008)

Data Collection on DOFI’s

Brokers will have to start collecting data on DOFI placements from 1 January 2009; this has been extended from 1 October 2008. This report will have to be reported to ASIC and will need to be lodged after 30 June 2009 for the period 1 January – 30 June 2009.

TIPS & TRAPS: Broker DOFI Assessments

When is a Broker Assessment Needed?

Insurance may only be placed with a DOFI if one of the 4 DOFI exemptions applies.

To rely on the exemption that the insurance “cannot be reasonably placed with an Australian authorised insurer”, brokers must make a written assessment and be satisfied that one of the following situations applies:

No Australian authorised insurer will insure the risk; or

The terms (including price) on which an Australian authorised insurer will insure the risk are substantially less favourable to the insured than the terms offered by a DOFI; or

There are other circumstances that mean that insurance with an authorised insurer is substantially less favourable to the insured than with a DOFI.

What is a Broker Assessment?

It is a written assessment stating that one or more of the DOFI exemptions applies to a client. It is advisable to use a checklist when making the assessment to document why you are certifying that business can be placed offshore. The completed checklist should be filed with the client’s records.

Brokers must give a Certificate confirming your assessment that the risk cannot reasonably be placed in Australia to the client on request.

How do I Make a Broker Assessment?

Brokers may need to do some research when making a DOFI assessment.

Reasonable market enquiries should be undertaken. This doesn’t mean contacting every underwriter to seek terms. The extent of the research required will depend on your market knowledge and expertise and how many insurers offer the cover locally. Up to date research should be used to work out who and how many locally regulated insurers are to be consulted.

Brokers should ask themselves:

Will an Australian authorised insurer be able to match the price of the DOFI?

Will an Australian authorised insurer be able to offer substantially the same coverage as the DOFI?

Are there any important parts of the cover which cannot be matched by the local market at all?

Other Circumstances?

Any assessment that there are ‘other circumstances’ which make it less favourable to use the local market must be objective. There must be a strong factual basis for concluding that this is the case.

It is important to consider the pros and cons of a local placement carefully before giving a Certificate to the client.

Issues that brokers should consider include:

What are the reasons that favour placement offshore?

Are they reasonable?

Is there continuity of relationship, cover or claims history?

Is there convenience for users of the insurance?

Is the majority of the client’s risk offshore?

Can an offshore insurer provide a better claims and insurance service?

Have I considered all of the factors and carefully weighed up the advantages and disadvantages?

DOFI Notice and Declaration

Brokers must also tell clients of the risks of dealing with DOFIs.

As most offshore placements will be for ‘wholesale’ business, correspondence to the client confirming placement of the insurance is a convenient place to include the DOFI Certificate and Notice. It could also be inserted in the client’s Insurance Manual or Renewal Manual.

For retail clients, the DOFI Certificate and Notice can be given in or with the SOA or a letter of advice (if you are not using a SOA). Even if there is a DOFI statement Certificate/Notice in the PDS, brokers still need to give their own to the client.

Always obtain a signed client acknowledgment. Make sure the DOFI Declaration and signed Client Declaration is filed with the client records

Automatic Renewal with a DOFI: can it be done?

For the time being, it is risky to automatically renew policies placed with a DOFI. If you do this, you will have difficulty in establishing that you have complied with the new laws.

Gold Seal recommends that brokers not automatically renew policies placed with a DOFI. Instead, seek renewal instructions prior to placement - so the DOFI requirements can be met.

Record Keeping

Brokers must keep records which show how your assessment was made, e.g.:

Checklist

Copies of correspondence from insurers who decline to insure a client.

Comparison between the terms offered by locally authorised insurers / Lloyd’s with those offered by a DOFI (including quotes and policy wordings used in the comparison).

Also keep a copy of any Certificate provided to the client (where the risk cannot reasonably be placed with a local insurer) and the DOFI Notice and Client Declaration.

Gold Seal also recommends that brokers maintain a DOFI Register of clients and policies which are placed offshore to help you comply with the ASIC reporting requirements (which commence on 1 January 2009).

If you have any queries with respect to the above information please contact Gold Seal at:

Gold Seal Risk Management Services Pty Ltd

Telephone: + 61 (0) 2 8353 6600

Or visit http://www.goldseal.com.au/

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