LMI competition is being stifled by APRA’s “unreasonably conservative” stance on regulation, according to the FBAA.
Speaking to Mortgage Business, FBAA chief executive Peter White said that previous attempts by overseas insurers to enter the local market have been aborted once they realise that APRA is “a barrier that is impossible to overcome”.
“APRA is restricting the LMI competition,” Mr White said.
“In the past, overseas lenders and insurers who have tried to enter the marketplace have walked away saying ‘This is too hard’,” he said.
“One group spent about $25 million in research and due diligence before they walked away.”
Mr White said there are already viable LMI options that exist in Australia which could lift competitiveness and consumer choice if APRA didn’t have its “head in the sand”.
“Part of it has been in the FSI submissions by some of the insurers talking about the amount of capital that we have to hold, which has become unreasonable,” he said.
“But there are also other restrictions that APRA has put in place from a regulatory point of view that just don’t make it worthwhile for people to do it and is a barrier that is impossible to overcome.”
“The LMI market is typically very concentrated and throughout the globe usually has only a small number of providers in each jurisdiction, due primarily to the extremely high capital and regulatory requirements that are necessary of LMI providers," QBE LMI chief executive Jenny Boddington told Mortgage Business.
"LMI has been an integral part of the housing market since it was introduced in Australia almost 50 years ago to help bridge the deposit gap for homebuyers required to pay a 20 per cent deposit, which is a significant amount for anyone,” Ms Boddington said.
“Since then, players in the Australian LMI market, which is closely supervised by APRA, have proven they are well capitalised and have robust systems and practices in place that ensure the market remains sound and LMI can continue to help more Australians realise their dream of home ownership sooner,” she said, adding that there are currently “a number of LMI providers” in the Australian market.
“When I was lending we had six insurers in the county,” FBAA chief Peter White said.
“Now it’s pretty much all done by QBE and Genworth,” he said.
“There are a few other insurers in the market but they are so small they aren’t even considered.”