A Federal Court decision has paved the way for much faster processing of reinsurance claims in Australia.

The court approved a new run-off scheme – which could see 40 years of claims settled within 12 months – for NRG, which left the Australian market several years ago but is still subject to claims.

Essentially, all parties will work with agreed estimates of forward claims. Clayton Utz lawyer Nicholas Mavrakis, acting on behalf of NRG, says the faster payments arrangement promises savings for both parties.

“The scheme allows all cedants’ claims against the reinsurer to be settled and paid much sooner than through its usual claims settlements process.”

“This enables cedants to achieve finality in the claims process more cheaply without protracted litigation and the reinsurer to achieve costs savings through not having to administer their claims book over a long period,” he said.

Mr Mavrakis says the scheme – in much more general use in the UK – is particularly useful for reinsurers that are not writing new business. The Australian Prudential Regulation Authority (APRA) would usually require the reinsurer to have available capital for the full length of existing contracts.

Clayton Utz partner Michael Parshall said his team worked with APRA to develop the scheme. The regulator remains cautious about it but has agreed, subject to the court’s approval, partly because the scheme involves reinsurance and not direct insurance.

Mr Parshall says NRG is a relatively small entity but the decision will probably flow on to other reinsurers leaving the Australian market. “It gives reinsurers a real choice to transferring their old claim portfolio or the company itself to a third party to run off.”