The Australian Prudential Regulation Authority (APRA) says it wants to see significant improvement in the group life insurance market, where competition is putting pressure on pricing, underwriting and operational practices and signs of poor claims experience are emerging.

Executive Member Ian Laughlin told the Financial Services Accountants Association national conference on the Gold Coast last week that APRA has also identified poor data for pricing in group life, some poor pricing practices and an inadequate skills base.

He says while there are signs of improvement by some insurers with better governance and justification of assumptions, “the industry can do much better” and APRA wants to see significant improvement over the next couple of years.

APRA will this month release its response on submissions to the Life and General Insurance Capital Review as well as final versions of most of the prudential standards.

“We are entering the home stretch of the long development process for our proposals,” Mr Laughlin said.

A prudential practice guide on the Internal Capital Adequacy Assessment Process (ICAAP) will be issued in September.

Mr Laughlin says APRA’s guidance will assist insurers “but will not replace the need for management and boards to give serious consideration to how best to develop and implement the ICAAP requirements for their company”.

He says the ICAAP is fundamentally the responsibility of the board and insurers should be well prepared for the starting date of January 1.

“We recognise that the ICAAP itself and the required documentation may undergo refinement over the first 12-24 months and we expect that practice in relation to ICAAP will improve over time as industry gains experience with the requirements.”

Some insurers have expressed concern that they will be required to hold extra capital under Pillar 2, a review process where APRA assesses their risk and capital management.

Mr Laughlin says APRA may increase a company’s prescribed capital, but he does not believe many insurers will need such an adjustment.