LMI needs fair play and full disclosure, says industry figure

by Mackenzie McCarty23 Apr 2013

FBAA national president, Peter White, has voiced major concerns surrounding the LMI industry in Australia, saying he’s concerned the area lacks fairness and transparency.

“LMI is a very important part of our sector, especially with off-balance sheet lending, but historically there was little or no discourse about the product and who, if anyone benefited from it – i.e., no disclosure at all.”

White says the FBAA has been the ‘sole public voice’ pushing for disclosures that will come into effect under the NCCP with the key fact sheet modifications.

“LMI should be what it states it is – insurance – but it has never complied with the Insurance Act, otherwise it would have had…PDS documents [product disclosure documents] and proper, fair rebates if the policy was terminated early. At this point in time, the only time you might get a rebate on LMI is if you terminate the policy inside of one year (sometimes two) – and only if you ask for it. How can one ask for something they don’t know exists?”

White says the FBAA has been talking to parliamentary ministers about allowing overseas LMI competition to exist in Australia and expanding on a model that exists today.

“We are continuing to engage them on this. APRA needs not be an impost for greater competition in the market place from new suppliers and at the moment they appear to be one of the last barriers.”

As for premium fairness, White says competition is the key, but that market claims ratios also play a part.

“One thing that is very important to understand is that, whilst this is called ‘insurance’ and we talk about ‘premiums’, LMI is not a true insurance product as we would all understand it; hence why there have never been PDS documents and normal rebates one would imagine would be in place. And LMI is not written under the Insurance Act, which is why they have never had to comply to these normal disclosure requirements and rebates by law.”

However, White says he’s not strictly against LMI and recognises that it has a valuable place in the home loan industry.

“I’m not against LMI. It’s a very important necessity for our industry; it just needs fair play and full disclosure.”


  • by James 23/04/2013 10:38:34 AM

    Absolutely agree with this. Mortgage Insurers seem to get away with so much. There is no open disclosure to clients even though they pay a huge premium for the insurance. The politicians should really place a priority on investigating this side of the finance industry.

  • by AaronG 23/04/2013 10:47:25 AM

    Another bout of regulation? Is this what we really need? How will brokers being forced to print PDS forms for LMI improve the process? In the end, any regulation means fewer approvals as regulation hounds forget that you simply can't force a business to do business with a customer. When you do this, you get the GFC as a result. It always amazes me that brokers insist on putting shackles on themselves. they think those shackles are going on the lender or the insurer, but they always just mean less choices for customers and less business written. When the NCCP came through and got rid of maybe 20% of the loans available, no replacement set of loans became available. There were just fewer choices. The idea that all customers are stupid, so they need protecting from themselves is tired and insulting.
    No one is entitled to LMI, so if you don't like it, save more money. If you do like it and you think they make great money, buy stock in their company.

  • by Shane 23/04/2013 10:51:50 AM

    As LMI offers no refunds after 2 years it needs to be made fully portable within the finance industry. Non portability of LMI remains one of the biggest barriers to refinancing of high LVR customers to another funder at a lower rate. They lose all the benefit of a lower interest rate by having to pay LMI once again on an existing debt that was previously covered by LMI.