The General Insurance Reform Act, drawn up last year by former FSR Minister Joe Hockey, sets tighter standards for general insurance companies and was sped through the legislative system following the HIH collapse. The standards have earned general praise from the industry for the demands they impose on insurers. This includes a capital adequacy level lifted from $2 million to $5 million, which pushed minor industry players into reassessing their place under the new market realities.

APRA’s standards now require insurers to also have better reinsurance and risk management strategies, place them under stricter corporate governance requirements and make greater emphasis on the role of actuaries.

The standards were in development over the past three years, and came into effect from midnight on Sunday. APRA CEO Graeme Thompson described them as “world-class”.

“The standards significantly increase the safety, soundness and sustainability of the Australian financial system,” Mr Thompson said. “The bar is now set much higher for insurers, and safety for policyholders is now stronger than it has ever been.”

The General Insurance Reform Act places greater onus on company directors to protect policyholders. “Boards must now sign off on formal risk management plans, take advice from approved actuaries with whistle-blowing responsibilities and be ‘fit and proper’ persons themselves,” he said.

Assistant Treasurer Helen Coonan says the reforms will deliver “the highest protection for Australian consumers. The importance of an insurance industry which balances stability and affordability has come to the fore in recent months as we have all become even more acutely aware of the importance of insurance to our daily lives,” she said.  

ICA Executive Director Alan Mason said it offers better protection for consumers and congratulated APRA for “the extensive consultation process which has given the insurance industry an opportunity to create a world’s best practice model”.

Insurers with significant investment risks or insurers writing on the liability and reinsurance lines will face risk-based capital requirements that are above the $5 million mark. These insurers need to have more capital due to the greater uncertainty they face and due to the long-tail nature of claims in liability insurance.