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.”