Occasionally, a regulator makes a proposal that manages to unite an entire sector of the financial services industry in opposition.

This seems to be the case with the Australian Prudential Regulation Authority’s (APRA) plan for insurers to appoint independent chief risk officers.

The general insurance industry accounted for about half the submissions APRA received on the draft risk standard.

Interestingly enough, the life industry made just two submissions, suggesting it is more relaxed about the regulator’s idea.

Of the submissions seen by insuranceNEWS.com.au, some are vehemently opposed, while others question APRA’s reasoning.

The Insurance Council of Australia (ICA) argues it should be “left to the board to decide on the need for a dedicated CRO in light of the organisation’s circumstances”.

ICA says senior managers spend plenty of time considering risk management, so there is no need for a separate CRO.

“The addition of a CRO may merely result in a doubling up of roles, increasing staffing overheads while creating overlapping responsibilities and confusion that may actually hinder an organisation’s effectiveness in addressing risk.”

Some submissions questions how an independent CRO will work with an insurer’s appointed actuary.

“We recommend it should be left to the individual institution to consider… to what degree the CRO and appointed actuary role are conflicted, then, on consultation with APRA, whether it is desirable to have a combined appointed actuary and CRO role,” the Actuaries Institute said.

Finity Consulting argues appointing an independent CRO could diminish the appointed actuary’s role.

“Actuaries understand insurance risk better than most non-actuarial CROs,” its submission said. “Insurance risks are the key risks facing general insurers and the proposed changes risk moving appointed actuaries further into a compliance role.

“CROs are not part of a defined professional framework, whereas actuaries are members of an established and recognised profession, with the institute providing high-level oversight of members’ activity. This provides useful quality control for APRA.”

In a recent speech to the Actuaries Institute, APRA Deputy Chairman Ian Laughlin acknowledged the concerns, but made no offer to scrap the proposal.

However, he says the regulator will consider exemptions for smaller insurers.

Finity suggests insurers with gross written premium below or between $250 million and $500 million should be excluded.

It says smaller insurers are particularly nervous about the cost of installing an extra layer of risk management.

Finity estimates a CRO’s department would cost $150,000 to $200,000 a year to run, but that is before the CRO’s salary has been accounted for.

When insuranceNEWS.com.au questioned recruiting companies, figures between $250,000 and $400,000 were discussed, depending on an organisation’s size.

The employer would also need to add short and long-term incentives, while Finity notes the cost of buying and maintaining software packages.

While APRA seems to have taken a firm line on the matter, the final prudential standard on insurers’ risk management will not be available until early next year.

Perhaps in light of the opposition, APRA has delayed the implementation date a year to January 1 2015.