The Minister for Financial Services & Regulation, Joe Hockey, has today announced the details of the change in timetable for the new General Insurance Act - a total overhaul of the 1973 regime.
The general insurance industry will be significantly impacted by the significant changes in prudential requirements. Foremost will be the need for all authorised insurers to meet new risk based capital requirements and a minimum new entry capital requirement of $5 million (raised from the current level of $2 million).
"The larger capital requirements will require some general insurers to either raise additional capital or look to merge with others to meet the requirements. This will take time to achieve and will be at considerable additional cost to the insurance industry," the Minister said.
"The new regime will also require general insurers to seek mandatory actuarial advice on the valuation of their insurance liabilities. This is a significant improvement on current practices and will provide a safer environment for consumers."
A revised timetable for the new General Insurance Act was agreed by federal cabinet yesterday as one part of the overall package in response to the collapse of HIH limited.
The legislation is now scheduled for introduction into federal Parliament in June 2001 and is planned to have been passed by both the House and the Senate by October 2001. The new regime will take affect from 1 July next year.
The proposed phased implementation will also be shorter than initially foreshadowed by three years - brought forward from 2007 to 1 July 2004.
The reforms will:
- significantly improve liability valuation and reporting;
- introduce a risk based approach to capital adequacy for general insurers, similar to current banking regulation;
- increase the minimum statutory capital held by the industry from $2 million to $5 million; and
- establish far more rigorous and transparent risk management systems for authorised general insurance companies.
There are around 25 companies of the 153 general insurance companies currently operating in Australia that will need to raise additional capital under the new arrangements (and which do not have a parent that can provide that additional capital).
The majority of these are very small insurers that will be required to move from the current absolute minimum test of $2 million in net assets to a capital adequacy test of $5 million.
The Government formally announced these reforms on 2 November 2000 after extensive industry consultation by APRA. Ongoing consultation with industry will ensure as smooth a transition as possible.