APRA has made it very clear that there will be no more HIH collapses as long as it’s around. The regulator has called for even tougher reforms for the general insurance industry which include a boost in its own powers and expanding the scope of regulation to cover unregulated insurers.

In a submission to the HIH Royal Commission on Thursday, APRA identified three main areas to introduce further reforms: consolidated supervision across the whole insurance sector; improving financial disclosure arrangements; and improving corporate governance and risk management practices.

The submission comes as the HIH Royal Commission turns its attention this week on the role played by APRA in the period leading up to its collapse.

APRA said its first batch of general insurance reforms, which took effect on July 1, produced a “substantive shift” in the prudential framework but haven’t gone far enough. “Legislation remains deficient in a number of areas and further amendments are necessary,” the submission said. 

These amendments would include increasing APRA’s enforcement powers and independence and its capacity to deal with insurance activities that presently do not fall within the scope of the Insurance Act.

The regulation of consolidated group insurers was identified as a major problem. “Increasingly supervisors are acknowledging the difficulty of ring-fencing insurers that operate as part of diverse corporate groups,” the submission said.

APRA’s general insurance reforms currently only cover single entities, which means that insurers falling within conglomorate groups or operating as offshore subsidiaries can escape regulation. APRA wants these groups to have to follow the same rules and capital adequacy requirements as general insurers.

And with a clear memory of last year’s damaging media and political uproar after the HIH collapse, APRA has also proposed establishing a national compensation scheme for victims of financial services collapses. It suggests the scheme be funded via a levy on the insurance industry or other relevant industries.

APRA General Manager Enforcement Darryl Roberts told Sunrise Exchange News that APRA prefers having a “pre-funded scheme” in place rather than having to set up a bail-out system like HIH Claims Support after a major company collapses.

“In Australia we don’t have the tradition of setting up pre-funded schemes,” he said. “But most other countries do. A pre-funded scheme would prevent unprepared schemes having to be set up afterwards.”

Mr Roberts also acknowledged an area not covered in the submission: the fact that many insurance-buyers are increasingly turning to unauthorised foreign insurers who offer cheaper premiums.

He said APRA takes the issue very seriously and recognises it is “more than just a temporary or transient problem”, but that any crackdown on unauthorised foreign insurers would require a revamp of the Insurance Act.

“In 2003, we will have an opportunity to look at the Insurance Act and see if it should be widened to bring unauthorised insurers under our regulatory net,” Mr Roberts said.