The risk management capabilities of the general insurance industry have improved in the past few years, but some insurers are all talk and no action, according to the Australian Prudential Regulation Authority (APRA).

The regulator’s annual report, released last week, says while measures like the introduction of roles like a chief risk officer and the establishment of risk management divisions within companies have assisted companies with their risk management processes, further work still needs to be done.

“In some insurers, the high-level principles set out in the insurer’s risk management strategy are not consistently reflected in the more detailed policies and procedures used by staff at operational levels.

“In other insurers, new product development processes are either inadequate or non-existent and there are often no guidelines covering when a product enhancement should be subject to these processes.”

The report says APRA is looking forward to a “very active year” in 2005/06. The development of a plethora of new reforms has meant there has been “no let-up in the tempo” of activities.

APRA supervises institutions holding about $2.2 trillion in assets for 20 million Australian depositors, policyholders and super fund members. It says its original goal of becoming a “world-class prudential regulator… remains undaunted”.

But APRA says there is still work to be done to ensure personal honesty remains prevalent in the Australian industry. Its recent run-in with Zurich Australia over dubious financial reinsurance arrangements is highlighted in the report.

“The detection by APRA of another ‘sham’ reinsurance arrangement designed to disguise the true financial position of a general insurance company was another reminder, regrettably, of the need for the highest standards of personal honesty and integrity in our financial system.”

The regulator says it will “have its hands full” with its heavy reform agenda over the year ahead. But once the key changes are implemented there will be “clear air ahead for the industry”.