The general insurance reform legislation also made its way into law last week, finally passing through the entire parliamentary process.

Apart from raising the minimum capital requirement from $2 million to $5 million, the new General Insurance Reform Act also empowers APRA to set a series of new standards. The first two draft standards have been released and comments are required by the end of this month. The standards come into effect on July 1 next year.

ICA Executive Director Alan Mason said the changes will “help to restore the community’s confidence in the general insurance industry after the collapse of HIH”.

The first draft standard relates to assets inside Australia. The amended legislation imposes an “inside Australia” requirement on all insurers, including foreign insurers operating as branches, forcing them to meet Australia’s prudential standard. 

The second standard requires insurers seeking the approval of the courts to transfer business to meet the requirements set down by APRA.  The standard is very similar to the standard applicable to life insurance companies. 

APRA will issue draft standards for capital adequacy, liability valuation, risk management and reinsurance in November.  CEO Graeme Thompson said it is important that all general insurance companies have a detailed knowledge of the new requirements, and warned that work should start immediately to ensure the insurers are able to comply from the middle of next year. 

Despite the additional legislative load the new legislation places on its members, ICA is disappointed the reform package hasn’t actually gone far enough. Mr Mason said the issues of unauthorised foreign insurers, the legislative cover of builders’ warranty insurance and the need for uniform Commonwealth regulation of state-based statutory insurance schemes also need to be dealt with.

“We are disappointed that these matters have not been taken up at this stage, and hope they can be revisited again next year.”

The new regulations will lift the capital requirement for the industry by more than $2 billion. At June 2000, the industry’s reserves were $7.2 billion above the current minimum requirements.