APRA to work with insurers to avert insurance rendered unaffordable by premium hikes
A common theme that increasingly pervades all three sectors of the insurance industry – general insurance, life insurance and health insurance – is the affordability and availability of insurance, Mr Wayne Byres, APRA chairman.
Speaking at the Financial Services Institute of Australasia’s “The Regulators” event on 13 May, he said, “Be it because of poor product design, rising claim costs, increasing litigation, or a changing climate, insurers are increasingly raising the price and / or reducing that coverage of the policies they sell.While that may be a sensible business decision for individual insurers in the short run, in the long run it leads to premiums that become unaffordable, cover that is poor value, or even products that are simply not available. “
No single solution
Mr Byres added, “We see an important role for APRA in helping avert such an outcome. There is not a single solution, but we can make sure insurers improve their product design, pricing, claims and exposure management. We can work with our public-sector colleagues to examine the underlying drivers of the problem and explore ways in which the trends can be reversed.
“And we can encourage the provision of information to policyholders to help them understand how they can contribute to risk mitigation. Addressing this issue is at the heart of our insurance industry strategy.”
Apart from outlining themes impacting the banking and superannuation sectors as well, Mr Byres flagged two foundational regulatory initiatives high on APRA’s agenda. He said, “I call them foundational because they’re not about more regulation, or changing regulation, but rather better regulation.”
Overhaul of prudential standards
The first initiative is APRA’s plan to modernize the prudential architecture.
As financial system risks have evolved, the prudential framework has grown. In total, there are now around 150 prudential standards and practice guides, supported by a myriad of information papers, industry letters and FAQs.
“It could do with an overhaul,” said Mr Byres, “We’ve therefore kicked off a project to do just that. Our objectives are to make the framework more cohesive; easier to understand and navigate; and less costly to maintain and update “In doing so, we also want to cater to new risks from digitization. Importantly, we’ll soon begin seeking stakeholder views on how we best do that.”
Collection of data
The second initiative is the five-year roadmap that APRA laid out in March to transform the approach to collecting financial data from the over-2000 entities APRA regulates.
All new data collections will be instituted through a system called APRA Connect, that allows the financial services sector to collect deeper, broader data sets that can be used in many ways – including by peer agencies, under the principle that data should be collected once and shared.
“But we have a major task to review and transition existing collections onto the new system. Only when we’ve done that can we harness the full benefits of APRA Connect: better data for users, collected at lower cost to the industry that provides it , “Mr Byres said.
The roadmap sets out a plan for each industry that’s been tailored to reflect the work already underway on new data collections, the expected regulatory policy agenda, and the industry’s capacity to accommodate change. Mr Byres called for active and regular engagement with industry participants in executing the ambitious project.