I have numerous conversations with people in Australia, UK and USA looking to start an Underwriting Agency in Australia and seeking to understand what’s involved from a regulatory perspective.
Typically the clients in UK and USA are managing existing MGA’s across UK, Europe and USA. Australian clients are typically people who have worked at an insurer, broker, other underwriting agency or are currently managing an agency that is an AR of an insurer.
Based on my experience, here are my top practical tips:
1. Understand the time frame
It’s easy to feel a little overwhelmed by the task ahead however, rest assured, it’s a well-worn path although a sound plan is critical. Assuming you have landed on your insurance product offering and services (such as claims handling), some of the things you need to consider:
- as an underwriting agency you need to operate under a binder with an APRA regulated insurer. This can either be a general insurer (Australian based) or Lloyds underwriter. It’s important to have the binder discussions advanced as a draft copy of the binder (including the schedule(s) but unsigned) needs to be submitted as part of your AFSL application (see point 2). Binder discussions will also include claims management and complaint management.
- if you will be using Lloyd’s capacity you need to consider the time-frame for becoming a Lloyd’s coverholder. This requires engaging a sponsoring Lloyd’s broker and/or managing agent and Lloyd’s Australia.
- if the company (and including the ultimate parent) who controls the Australian licensee is based overseas with overseas domiciled directors you need to account for the time to obtain fit and proper checks from those jurisdictions
- the time to obtain an AFS Licence; and
- setting up your business including registration, systems, people and a myriad of other tasks and activities
2. Do you need an AFSL?
An Underwriting Agency generally is required to hold an AFS Licence for general insurance products with financial product advice, dealing, and claims handling (if agreed by the insurer) authorisation.
You do not need to hold an AFSL if you are an authorised representative of a suitably authorised licensee or can rely on an exemption. If you are intending to provide financial services to Wholesale clients only, there is an exemption for APRA regulated insurers and Lloyds underwriters. However, this creates practical issues in dealings with insurance brokers plus most Agencies prefer the governance that a Licence affords.
3. Setting up a business in Australia
There are the usual steps involved in setting up a business in Australia, including:
- choosing the company type and shareholder/ownership structure
- registering the company with ASIC
- apply for an ABN and register Business name(s)
- RG 121 is an ASIC guide is for people or companies from overseas who propose to conduct a financial services business in Australia.
4. What are the people requirements for AFS licensing?
The main requirements are:
- the fit and proper requirement – ASIC must ensure that your key people meet the requirements of the fit and proper test. This includes the licensees directors and officers including the directors and officers of any person/company who ‘control’ the licensee. Control is defined in s910B Corporations Act and includes majority shareholding, voting rights or the ability to influence decision-making.
- responsible managers – these people make material decisions in respect of your financial services. Individually, they need to meet one of the 5 options in RG 105, and together provide complete coverage across your licence authorisations.
5. Understanding your obligations
As part of your AFSL application and on an ongoing basis you must meet your AFSL obligations together with the GI Code of Practice (where relevant) and naturally Binder requirements.
A documented approach is necessary (refer RG 104). For entities with overseas (Group) owners and compliance functions, this will usually involve dovetailing with Group risk and compliance arrangements.
As an AFS Licensee you must comply with:
- s912A(1) general obligations;
- compensation arrangements;
- conduct obligations;
- disclosure obligations;
- design and distribution obligations; and
- additional obligations based on what you are doing and how you are doing it.
I can assist with your Governance, Risk and Compliance Framework.
6. Engage the right people
It’s critical to obtain the right advice, from the right people, early on:
- Licensing and compliance advice – I can provide this;
- business structure and model (if relevant) – I can put you in touch with some great Australian legal practitioners if you don’t have your own;
- Accountant/Auditor
- Lloyds Australia; and
- Underwriting Agencies Council.
7. What are the costs?
When budgeting, you should consider:
- a resource to assist with Australian licensing and compliance requirements (contact me for my costs);
- ASIC licence registration fees (range AU$2,500 – $4,000)
- AFCA membership fees
- Accountants fees – if relevant – they can assist with meeting your base level financial requirements (RG 166)
- legal fees – if you are contemplating a complex corporate structure
- in addition to the usual business operating and start-up costs.
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