The Australian Prudential Regulation Authority (APRA) has redirected “significant resources” towards understanding and responding to the impact of COVID-19 on the financial system.

The regulator initiated its own crisis management arrangements more than a month ago to protect operations and staff, APRA Chairman Wayne Byres said during an opening statement to the Senate Economics Legislation Committee on Friday.

APRA is also busy using its Pandemic Planning guidance to assess industry readiness to cope with disruption.

“The financial system is positioned to handle short-term volatility in financial markets, but navigating any period of extended stress is inevitably something that will warrant considerable vigilance,” Mr Byres said.

The regulated institutions at the core of the financial system are “very alert” to the risks to their businesses and are initiating contingency planning to deal with a range of scenarios, he said.

Mr Byres also said insured losses from extreme weather events during summer are likely to rise substantially.

“Current estimates for total insured losses as a result of these disasters across Australia are projected to be in the order of $5 billion – a significant sum,” Mr Byres said. “The summer’s events will undoubtedly have an impact on the price and, in some cases, availability of insurance into the future.”

Since November, bushfires, storms, hail and floods have severely impacted homes, businesses and communities across the country. Claims totals from bushfire and hail show insured losses have already passed $3 billion, with bushfire losses from the November-declared catastrophe at $1.989 billion from around 27,000 claims as of February 24, according to the Insurance Council of Australia (ICA).

Mr Byres says the insurance sector is well-placed to cover these claims, and its ability to respond highlights the importance of the work APRA undertakes in more “benign” times to build and maintain strength in the financial system.

“Insurance is critical to the recovery effort,” Mr Byres said. “Insurers have the capital strength and liquidity to meet their claims and, very importantly, remain well capitalised to respond to further events that may occur,” he said, noting Australia’s cyclone season is not yet over.

APRA has been particularly focused on the adequacy of insurers’ own reinsurance arrangements to make sure the industry had the “wherewithal” to manage claims.

“Insurers have the capital strength and liquidity to meet their claims and, very importantly, remain well capitalised to respond to further events that may occur,” Mr Byres said.