Smaller insurers should expect a “backlash” from APRA as it sets out to restore its credibility in the wake of the HIH debacle.

That’s the view of one leading insurance industry executive, who said the HIH situation is unique in the industry’s recent history, but APRA may feel it has to make an example of every insurer “straying from a new rigid line”.

“The little companies are the ones they’ll be watching,” he said. “It might have been a big company [HIH] that fell over, but it’ll be the little companies that get punished.

Those “in the know” realise the market is fundamentally sound, and that the HIH collapse was unique, he said.

A senior underwriter agreed that APRA is now under the gun to prove its relevance in the market, and agreed that smaller insurers are likely to come under the microscope now. “They’ll come under all sorts of pressure.”

One industry executive suggested that if the coverage situation remains unresolved for too long, the Government could consider imposing a levy to ensure money is available to meet HIH’s commitments. “If that’s the case, the industry’s credibility is in for a real belting,” he said.

ASIC is advising people holding current small business, rural and/or commercial insurance policies that they will be covered by Allianz. However, because there may be exceptions, brokers or agents will have to confirm this is the case.

Workers’ compensation policies issued by HIH are guaranteed under the schemes of the states the company operated in. Similarly, CTP insurance – in which New South Wales and Queensland are the only two states involved – is also guaranteed under state laws.