More insurance companies will follow HIH into extinction if the Government doesn’t  introduce more efficient and effective auditing methods, according to risk management expert Dr Ian Paterson. 

Sydney-based Dr Paterson, who has a PhD in insurance risk analysis, told Insnet News that he believes another insurance company will collapse in the next 12 months. He declined to name the company, saying he has been threatened with legal action in the past over similar forthright comments about insurance companies’ financial stability.

Dr Paterson, whose warnings about further insurance failures gained attention in a Sydney newspaper, has worked as a consultant to the industry for more than 20 years. He said he predicted the HIH collapse five years ago.

He alleged that many people in the industry were aware HIH was in trouble prior to its collapse, and blamed inadequate auditing systems as well as an inadequate regulatory system in APRA for allowing the situation to develop to the point of total collapse.

Dr Paterson said he is extremely frustrated by the amount of taxpayers’ money that is likely to be spent on the HIH royal commission. “Five to 10% of what is spent on the royal commission should be spent on implementing strategies that establish the risk of companies,” he said. “It will only tell what happened historically within HIH. The money is only being used to plug holes in the dyke.”    

Dr Paterson’s views are contradicted by such authorities as APRA, Financial Services and Regulation Minister Joe Hockey, and ICA, who have all said the failure of HIH was an aberration. However, there is general agreement that the new prudential standards in the planned General Insurance Act will see some companies quit the market.