Insurers in the Asia-Pacific region face more scrutiny from regulators this year – and the pressure will not ease, according to a report obtained by insuranceNEWS.com.au.

“This year is shaping up to reflect a trend of regulatory change and reform in the region, in an increasingly wide range of areas,” KPMG’s report Evolving Insurance Regulation – A New Dawn says.

“The 2013 International Association of Insurance Supervisors (IAIS) annual conference in Taipei during October places additional regulatory focus on the region and will serve as a… time to take stock of local and regional developments under the global spotlight.”

In Asia-Pacific – including Australia and New Zealand – insurers face new rules on prudential and customer service standards, plus cross-border trading and microinsurance.

Many countries are building risk-based capital regulation, with Australia and Singapore well advanced.

China, Hong Kong and Japan are considering changing their prudential requirements on capital risk.

“In many cases regulators are citing the IAIS Insurance Core Principles when communicating the aims, objectives and drivers of their new or enhanced risk-based capital regimes,” the report says.

“This points towards future regulatory focus on… economic-based valuation standards for assets and liabilities, as well as a total balance sheet approach.”

Regulators will also concentrate on the potential recalibration of minimum solvency capital requirements, and the development of an enterprise risk management framework that is integrated with managing solvency capital in the organisation.

“Analysis of the range of developments under way across the region reveals a strong affinity with each of these elements,” KPMG says.

“It includes aspects such as risk appetite systems, economic capital frameworks and enhanced asset-liability management processes.”

As seen in Australia, regulators are increasingly seeking to protect insurance customers.

In the past this meant product approval, but authorities now want to ensure protection at the advice and selling stages.

“There are signs that approaches to consumer protection in Asia-Pacific may be starting to display a principles-based approach to customer-centricity, such as Australia’s Future of Financial Advice reforms,” the report says.

“Many jurisdictions predominantly achieve customer protection through regulatory preapprovals of products and pricing, but we are starting to see the relaxation of such approaches in some cases.”

China is adopting this stance for general insurance, while other parts of Asia are looking at fair treatment of customers, sales practices and the risk of mis-selling.

This will mean more compliance levels for insurers, especially in areas of sales training and customer support staff, KPMG predicts.

“For insurers in Asia with large agent workforces, this could mean a significant investment is required. We expect future regulatory reform packages to address the treatment of customers.”

As insurers grow beyond traditional national borders, regulators are becoming more regional in their approach, KPMG says.

“Asia-Pacific supervisors are now commonly involved in regulatory colleges and in recent years have had greater exposure to the activities and operations of insurance groups outside their local territories.

“Groups such as the ASEAN Insurance Regulators’ Meeting also serve to increase connections between supervisors in the region.

“For this reason there is perhaps greater scope for the region’s regulators to learn from their neighbours and from supervisors further afield when developing and implementing reforms.”

This is a positive development, KPMG says. It should mean better regulation that has been properly thought through.

If Australian insurers think July 1 – the start date for many new rules – is the end of the regulatory wave, they should think again.

KPMG says it is difficult to remember a time when insurers faced so much regulation from so many sources.

“It is clearly critical for insurance companies – either those operating solely on a domestic level or those operating globally – to build the tools and capabilities to cut through this period of increasing regulatory complexity.”