Shadow treasurer Angus Taylor has outlined the Coalition’s plans to tackle insurance red tape as it prepares for this year’s federal election.

Prudential settings would be changed to ease “overcapitalisation of insurers” and measures to reduce compliance costs would be implemented under a Coalition government, he said in a speech last night.

“Increasingly, Australians are underinsured, underadvised,” Mr Taylor said.

“Overzealous regulators ... and unintended consequences of well-meaning regulation have seen those arteries clogged.

“Compliance costs in the financial services industry now exceed $1 billion.”

On Australian Prudential Regulation Authority capital rules for insurers, he said: “We will reset APRA’s statement of expectations, balancing its primary focus on financial system stability with internationally competitive access to finance for Australian households and businesses.

“In particular, we will focus on … avoiding overcapitalisation of insurers to better reflect the underlying risks of their portfolios, lowering costs for consumers and freeing up capital for investment. Financial stability will still be paramount, but we need to facilitate investment and innovation, not hinder it.”

The Insurance Council of Australia has welcomed the Coalition’s plan to ease regulatory and prudential requirements on the industry.

“Insurers support effective regulation to protect consumers and enhance trust in the insurance sector, adopting best practice and focusing on consumer outcomes,” ICA said today.

“However, the rapid pace of regulatory reforms over the past decade has strained industry resources and added to cost pressures that are ultimately borne by customers.

“That’s why ICA welcomes the announcement … to improve productivity and reduce costs for consumers by adjusting capital liquidity rules for insurers. This would be a significant change and one insurers have been calling for for some time.”

Taylor Fry actuary Scott Duncan says the key issues facing home insurance are the impacts of natural disasters and building material cost inflation.

“The amount of capital insurers need to hold and the return required on that capital is probably what I’d refer to as a secondary factor,” he told insuranceNEWS.com.au.

He says current prudential requirements are “calibrated to ensure that insurers hold enough capital against a one in 200-year event ... They do allow insurers to invest in higher-return/higher-risk investments – equities, for example. 

“What the current regulatory framework does is, it looks at the relationship between the assets that an insurer holds and the profile of its liabilities, and the idea is that if they are perfectly matched ... you don’t need to hold significant amounts of capital.

“That’s all wrapped up in what is called the asset risk charge under prudential requirements ... and I think what the [Global Financial Crisis] shows in particular is that things can change very quickly when it comes to financial markets.

“The catastrophic events we have seen over the past 10 years show that liabilities can also change very quickly, so those large events can have a material impact.”

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