The industry has been told to expect increased scrutiny on the outsourcing of work to underwriting agencies, brokers and other service providers under governance requirements starting next year.

Risk associated with using underwriting agencies will be a particular focus for the Australian Prudential Regulation Authority, the watchdog’s executive board member Suzanne Smith said in a speech today at the Insurance Council of Australia conference in Brisbane.

“Partnering with experts to underwrite hard-to-place risks or to reduce operational and distribution costs can be a strategy,” she said. “However, it is important to remember that the responsibility for core underwriting decisions always remains with the licensed insurer, as insurance risk and accountability are the very reason why insurers hold licences in the first place.

“The key takeaway is that while authority can be delegated, the ultimate responsibility remains solely with the insurer.”

Ms Smith set out what the regulator expects from the industry as it prepares for the Financial Accountability Regime from March 15 and CPS 230 Operational Risk Management from July 1.

“Your risk and governance frameworks need to be robust, and where weaknesses exist, APRA strongly encourages you to reflect deeply to understand the underlying causes and drivers,” she said. “While much of this implementation should be well progressed, our work across the industry tells us that several critical areas still require attention.”

On CPS 230, she said: “This standard is designed to strengthen the management of operational risk and increase entity resilience. This includes the consideration of underwriting agencies, claims managements services and insurance brokers as material service providers that should all have commensurate governance in place.”

She says strong governance practices are crucial, including “robust” on-boarding and exit plans, elimination or clear management of conflicts of interest, adequate governance resources and sound data security.

“This also extends to scaling operations, such as ramping up claims handling during a crisis.”

Federal Emergency Management Minister Jenny McAllister, who also spoke at the conference, said collaboration is needed to tackle premium affordability challenges.

“There are levers we can pull to drive down risk in communities and consequently put downward pressure on insurance premiums ... However, it’s a textbook case of a policy problem that demands collaboration,” she said.

She said the Hazards Insurance Partnership is a “genuinely innovative collaboration between the sector and the government”.

“You have trusted the federal government with your insights and – perhaps more crucially – your data. This information has been critical in helping us kick-start a number of projects designed to better protect communities.”