General insurers will have to appoint independent chief risk officers under a new standard proposed by the Australian Prudential Regulation Authority (APRA).

Such an officer would be independent from the day-to-day running of the insurer and its sales and finance departments, according to proposed standard CPS 220.

“The chief risk officer must not be the CEO, CFO, appointed actuary or head of internal audit,” APRA says.

“The standard is intended to support the stature of the chief risk officer role by proposing that it has a direct reporting line to the CEO and unfettered access to the board.”

APRA also proposes that insurers create board risk committees, to provide objective oversights of the implementation and operation of risk management frameworks.

The risk committee should be run by an independent director, not the chairman of the board, according to proposed standard CPS 510.

It will have the power to endorse the appointment, or dismissal, of the chief risk officer.

“This latter responsibility is consistent with the elevated stature and authority of the risk management function,” APRA says.

Members of an insurer’s board audit committee could sit on the risk body, but APRA wants “an appropriate diversity of membership of board committees to assist in the clear delineation of oversight responsibilities”.

Enhancing the regulator’s risk management requirements is consistent with global improvements on the matter and lessons learnt in the global financial crisis, according to APRA Chairman John Laker.

“Our aim is to reinforce good governance and risk management. We want to ensure boards and supervisors direct their focus to where it is most appropriate – on desirable values and behaviours implemented by strong management teams.”

Submissions on the two draft prudential standards must reach APRA by July 5. The regulator proposes introducing the new requirements by January 1.