By Claudia Bacetic, Communications Manager
The Tariff set insurance prices, prescribed product features and controlled distribution. Before the entry of independent reinsurers to the Australian market post World War II, the Tariff curtailed the entry of non-member insurance companies by closing ranks on reinsurance arrangements.
Set up before Federation in 1897, the Tariff initially operated on a state basis. In 1909, a federal body known as the Council of Fire and Accident Underwriters’ Association of Australia (CFAU) was formed. Controlled by the general managers of the biggest Tariff companies, the CFAU went about setting approved rates and terms for everything from fire and public risks to burglary, motor car, livestock, seaman’s compensation and other product classes.
The Tariff also had a stranglehold on insurance brokers, who were privately licensed by these companies. Tariff brokers were only allowed to place business with CFAU insurers, who paid them a 10 per cent commission. If they sought cover from Lloyd’s of London for risks unacceptable to Tariff companies, they had to seek permission first and pay a premium. And if they were providing insurance to any companies with a director on the board of a Tariff insurer – of which there were countless hundreds – no commission was payable. No commission was payable on marine risks either. And it wasn’t until multinational brokers entered the Australian market in the 1950s that the Tariff started relaxing some of these rules.
Needless to say, these Tariff arrangements distorted products and prices. And in the absence of any regulation aside from some deposit-taking requirements, member companies ruled Australian insurance pretty much unfettered for the first 25 years of the Tariff’s existence.
It didn’t take Edward Lumley long to realise that Australia was the land of insurance opportunity. When Edward opened representative offices of Bennie S. Cohen and Son – his father’s broking company – in Melbourne and Sydney in 1922, he became the first Lloyd’s broker to open for business in the Australian market. More offices followed soon after in South Australia (1923), Western Australia (1925), New Zealand (1928) and Queensland (1935).
Initially, Bennie S. Cohen and Son offered niche insurance products that were not available in the local market at the time, such as household contents, earthquake damage, cash in transit and jeweller’s stocks against all risks.
Then in direct competition with the Tariff, the company began targeting larger Motor accounts with a broader coverage. Some of the company’s early coups against the Tariff were arranging cover for the SA Automobile Association in 1923 and for the RACV in 1927.
Because of the tyranny of distance, Lloyd’s brokers operating overseas could accept risks on behalf of Lloyd’s underwriters under a binder arrangement. This allowed them to accept defined risks at a predetermined premium scale. They could also independently settle smaller claims. The binder issued to Bennie S Cohen in 1922 for Lloyd’s fire policies allowed the company to issue these policies at a 15 per cent discount to the net Tariff rates.
In response to the direct competition from Bennie S. Cohen and Son and other smaller Lloyd’s brokers, the Tariff was forced to widen its product range and introduce a new regulation that allowed member companies to reduce prices to its major clients.
A copy of this new regulation was tabled in the Board Minutes of Bennie S. Cohen and Son on 1 October 1929. The NSW Tariff had agreed that fire rates could be reduced by 25 per cent to withstand Lloyd’s competition: “when an account was in jeopardy and likely to go to Lloyd’s the company or companies holding such lines could reduce their rates to the basis of Lloyd’s without infringing any clause of the Agreement”.
Bennie S. Cohen and Son (rebranded as Edward Lumley & Sons in 1944) continued to go from strength to strength over the next half century in spite of the Tariff’s attempts in the early days to try and squeeze the company out of business. And the underwriting company it set up in 1937 in response to a threat at the time that only locally registered insurers might be permitted to write business in Australia is still going strong today. Since 1989, the Security & General Insurance Company has gone by the name of Lumley Insurance – as a tribute to its pioneering founder – and in 2003 it became part of the Wesfarmers Group, the largest diversified company in Australia.
As for the Tariff, the influx of migrants and powerful new insurance players post World War II began to slowly dilute its powers. But it was the introduction of the Trade Practices Act 1974 and the outlawing of anti-competitive behaviour and cartels that sounded the Tariff’s final death knell.