The Australian Prudential Regulation Authority (APRA) is to increase its focus on the way insurers manage risk in their organisations.

It follows a review of financial services institutions’ risk governance, in which most groups were rated “adequate”.

A considerable number were judged to be “vulnerable”, with several rated “weak”. Few were “strong” on risk management.

Vulnerable and weak groups lack direction from their boards and have deficiencies in controls, monitoring and reporting, and culture, APRA Executive Member Ian Laughlin says.

“What we now intend to do is to gradually increase the attention we give to risk governance,” he told the Actuaries Institute summit in Sydney last week.

“This means that we will be paying more attention to risk governance in our prudential reviews and in our interaction with boards and the CEO. 

“We will be looking to see that quality of risk governance is being actively assessed, monitored and managed, with a clear understanding of its current state and a plan to address any deficiencies.”

This will mean occasional informal meetings with chairmen and risk committees, Mr Laughlin says.

APRA will still meet insurers’ full boards in its supervisory role.

“We intend to rely heavily on the boards’ own assessments of both risk governance and culture. We will be strongly encouraging boards to form firm views and understanding of each.”

APRA also plans to ask a series of questions on risk management, Mr Laughlin says.

“Some of these will help address the formal requirement in our prudential standards [CPS 510] for assessing the board’s performance relative to its objectives.”

Questions will consider the role of risk compliance at an insurer, culture, pay and performance indicators for staff in that area and the quality of decision-making.

Senior managers and risk governance staff should work with boards to help them prepare answers, Mr Laughlin says.