Pacific International Insurance has been forced to add $10 million to its prudential capital requirement over “fundamental deficiencies” in its binder arrangements with intermediary partners.

The Australian Prudential Regulation Authority announced the measure today – its first action against an insurer since member Suzanne Smith told the industry last month to expect increased scrutiny on the outsourcing of work to appointed intermediaries including underwriting agencies and brokers.

APRA says a review of Pacific International identified deficiencies in the insurer’s oversight and control of its binder business and risk management framework. 

Lapses included weaknesses in accountability and adequacy of resourcing, the regulator says. The binder arrangements authorise an intermediary to issue policies on the insurer’s behalf.

Ms Smith says that while authority for underwriting can be outsourced, the responsibility remains solely with the licensed insurer. 

“Outsourcing can help with solutions for hard-to-place risks or reduce operational costs for insurers, but it is crucial to understand that the overall risk stays with the insurer, as insurance risk and accountability are the reason why insurers hold licences in the first place,” she said.

She says the regulator “will continue to take suitable action if insurers do not meet expectations ... APRA protects policyholders through its prudential framework and active supervision, so they can have the confidence that insurers meet their obligations.”

The regulator says Pacific International has accepted the findings and is committed to a remediation action plan. “However, further effort is required to ensure the changes are executed and embedded successfully, and to verify their effectiveness in addressing APRA’s concerns.”

insurnanceNEWS.com.au has asked Pacific International for comment.

The insurer had a prescribed capital amount of $29 million at the end of June 30 last year, according to available APRA statistics. It recorded gross earned premium of $229 million, gross incurred claims of $85 million and an underwriting profit of $24 million for the period.

It is part of South Africa’s Badger International, an insurance group with global interests.

Pacific’s website says the business partners with a variety of digitally enabled niche businesses, including insurance binder arrangements with specialist managing general agents – also known as underwriting agencies.

It offers pet and car insurance via PD Insurance; disability insurance via Blue Badge Insurance; and professional indemnity and general liability insurance via Rapid Solutions.