Australian Prudential Regulation Authority (APRA) Chairman Wayne Byres has warned the worst from the pandemic is not over, revealing it remains on the alert for potential “severe stress” on the insurance and broader financial services sector.

Ensuring the industry is prudentially sound to handle the economic fallout from the COVID-19 crisis is the top priority right now for APRA, Mr Byres told the House Economics Committee last week at a public hearing via video link.

“As a result, APRA has had to completely overhaul its plans,” he said in his opening statement. “We have significantly adjusted our operations to give primacy to managing the impact of the economic and social crisis created by COVID-19.

“Experience in Australia and elsewhere tells us that when the broader economy encounters severe stress, so does the financial system.

“We have therefore deployed resources to increase the intensity of our stress testing, and have been refining and improving our contingency planning. We need to be prepared, and agile, to manage pressure points as they inevitably arise.”

He says APRA has examined the impact of the crisis on insurer’s investment portfolios and specific product classes such as business interruption and trade credit insurance.

While insurers and other financial services providers have weathered the crisis well, he cautioned against complacency.

“So far, the finance sector has been able to act as an important shock absorber to the broader economy, and able to support households and businesses navigate a period of severe stress,” Mr Byres said.

“But I also need to emphasise that diligence will be needed to ensure it remains that way, given the extremely difficult times ahead.”

Australian Securities and Investments Commission (ASIC) Chairman James Shipton, who also appeared before the committee, says actions have been taken to ensure consumers are treated fairly even as the financial system comes under strain from the pandemic crisis.

He says ASIC is actively engaged with the insurance industry, pressing on the need for claims to be processed “efficiently and in good faith”.