Social risk changes are being overlooked and should be more closely monitored by insurers through a formal review process, the Actuaries Institute warns.

Introducing an annual social condition report that takes a systematic approach to examining key relationships could avert problems uncovered by the Hayne royal commission, a discussion paper released by the institute says.

“Our basic argument is that relationships [with key groups] are of great value and really there isn’t enough attention given to them,” report co-author Ian Laughlin – a former deputy chairman of the Australian Prudential Regulation Authority (APRA) – told insuranceNEWS.com.au. “There is certainly not a systematic approach to understanding and managing those relationships.”

The concept is broadly modelled on the financial condition report mandated for insurers by APRA, and could be useful for the Australian Securities and Investments Commission (ASIC), which is to take a more active oversight role.

“Our starting point is that this makes sense for the board, and ideally would be driven by the board, but it would also be of considerable value for ASIC in particular [and] also APRA,” Mr Laughlin said.

A mock social condition report, based on a fictional bank, has been made available. It uses signal analysis and relational analytics to provide assessments that can be tracked. It looks at groups including employees, customers, partners, regulators and shareholders.

The report, co-authored by Finity Consulting Principal Hadyn Bernau, has been produced as part of The Dialogue series, published by the Actuaries Institute to drive discussion on important emerging issues.

Mr Laughlin says the social condition report could provide an early warning before issues escalate, with current risk assessment methods commonly based on backward-looking measures.

“The board would see where problems are emerging and are likely to emerge and therefore could take pre-emptive action, and that is really what is important,” he said.