Life insurance market should welcome regulatory changes: PwC
The upcoming Australian Prudential Regulation Authority (APRA) standards for life insurance companies should be welcomed by the industry as an opportunity to embed better practices, according to PricewaterhouseCoopers partner Scott Fergusson.
Fergusson, who will speak at the Financial Services Council Life Insurance Conference later this month, said the APRA Life and General Insurance Capital (LAGIC) standards would put pressure on life companies to employ analytical tools to better assess risk.
"Quantitative studies [as part of LAGIC] have indicated that across the life sector, capital requirements will increase. But the reality is that the business model and the businesses won't have changed," Fergusson said.
As a result, life companies will need more capital to run the same amount of business, he said.
He warned that it would be very difficult for the life industry to justify an increase in premiums because of rising capital requirements.
"It may well come to pass that that's what happens, but it's a tough message for life companies to deliver to customers," Fergusson said.
Another consequence of the regulatory changes in the industry will be changes to the responsibilities of board members, said Fergusson.
"Boards are concerned about a perceived increase in their direct responsibilities. For example, boards will have to sign off on pricing, which is usually done by management," Fergusson said.
"Over the past 18 months APRA has been active about raising the bar on risk management, and the role of the board in making sure the risks are appropriately managed," he added.
Fergusson said life companies are "very wary" about the upcoming regulatory changes, but he predicted that they would change their focus in 2012.
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