The Insurance Council of Australia (ICA) has challenged a proposal to strengthen the Australian Prudential Regulation Authority’s (APRA) crisis management powers.

In a submission to the Federal Treasury, ICA CEO Rob Whelan says there is justification for increasing APRA’s powers following the global financial crisis, but distinctions must be made between insurers and banks.

He says that the International Association of Insurance Supervisors “has concluded that traditional insurance poses little risk to the stability of the financial system”.

“Consequently, the general insurance sector does not require the same regulatory approach as that applied to banking, which is heavily influenced by the goal of promoting systemic stability.”

He says if a general insurer is in trouble, there is no danger of immediate collapse because there cannot be a “run” on an insurance company as there can be with a bank. Insurers have time to take recovery action, and if they are unsuccessful can manage an orderly unwinding of insurance assets.

“There may be synergies in having a uniform prudential regime that is applied as widely as possible across the financial services industry,” the submission says.

“However, the important thing is that prudential regulation works equally effectively across sectors, not that all sectors comply with the same requirements even though they aren’t warranted by the characteristics of the sector.”

ICA believes the reforms propose extending APRA’s powers without necessary safeguards to ensure they are properly used, and says in many cases no adequate justification is given for the changes.

It says the proposals cite general examples from foreign jurisdictions, without acknowledging that these regimes apply different treatment to insurers and banks.