General and life insurers will have to undertake disaster planning if the Government’s draft prudential standard on business continuity management (BCM) is passed.

Under the proposed standard – which would be managed by the Australian Prudential Regulation Authority (APRA) – executives would have to identify, assess and manage potential threats to the functioning of their company that could have an effect on policyholders.

Insurers would have to prove they could meet financial obligations to depositors and customers in the event of a disaster. They would also have to do regular reviews of the BCM framework, including periodic testing and maintenance of the business continuity plan.

APRA Chairman John Laker says the regulator has done detailed assessments of insurers’ BCM plans for years and has used its experience to come up with the proposed requirements. “As businesses’ operations have become increasingly complex and vulnerable to disruption from external events, effective BCM has become an essential component of a regulated institution’s risk-management framework,” he said.

“The proposed standard will ensure all regulated institutions adequately address their business continuity risks on an ongoing basis.”

Insurance Council of Australia spokesman Heather Reid says the proposed standard does not duplicate the responsibilities of the Insurance Disaster Response Organisation (IDRO). The standard would deal with individual companies, whereas IDRO monitors issues at an industry level.

“At this stage we don’t feel like there is any overlap, and we’re just in the process of going through the papers with a fine-tooth comb,” she said. “We’ll be meeting with our members soon to assess the issues.”

Submissions on the new draft standard are due by September 30. The final prudential standard is due for release in November.