Funding for the Australian Prudential Regulation Authority (APRA) is to be increased by a further $8 million over 4 years to support policy initiatives designed to contribute to financial sector stability and improve the availability of information relating to the insurance sector.
APRA will receive additional funding of $3.7 million from 2006-07 to ensure the completion of a comprehensive programme to determine whether a number of individuals are ‘fit and proper’ to remain in the general insurance industry in view of the HIH Royal Commission’s findings, and to deal with resulting appeals.
The Assistant Treasurer, Peter Dutton, said “robust disqualifications of unscrupulous operators from the general insurance industry are necessary to protect policyholders.”
“The Government is committed to pursuing those in the insurance sector who act irresponsibly and pose an unacceptable risk by disqualifying them from positions of responsibility in the industry”, Mr Dutton said.
The Government’s commitment to this programme confirms the strong position it has taken by removing those who do not meet the ‘fit and proper’ standards.
Another initiative by the Government will see APRA receive $4.3 million from 2006-07 for the National Claims and Policies Database. The database stores detailed claims and policy information in relation to all public liability and professional indemnity insurance written in Australia.
“The National Claims and Policies Database will increase the information available about the market for public liability and professional indemnity insurance. It will help ensure that the benefits of tort law reforms accrue to the community”, MrDutton said.
These measures are in addition to the significant additional funding APRA has received in recent years to support a stronger financial system in Australia.
Supporting Information
Fit and Proper Assessments
Why is this initiative important?
- APRA requires funding to meet the higher-than-anticipated cost of assessing whether a number of individuals are ‘fit and proper’ to remain in the general insurance industry in the light of the findings of the HIH Royal Commission and to deal with resulting appeals.
- For individuals named in the HIH Royal Commission to escape appropriate scrutiny and sanction could be seen to set undesirable precedents in relation to APRA’s, and the Government’s, tolerance of action that does not meet ‘fit and proper’ standards.
Who will benefit?
- General insurance policyholders will benefit from the disqualification of individuals known to pose a risk to their interests from positions of responsibility in the industry.
What funding is the Government committing to the initiative?
- $3.7 million is being committed in 2006-07 to complete the ‘fit and proper’ assessments and to deal with current and potential appeals.
What have we done in the past?
- Funding was provided to APRA directly from the Government in the 2004-05 budget for ‘fit and proper’ assessments undertaken in the 2004-05 and 2005-06 financial years. It has been the practice that APRA funding relating to the HIH Royal Commission, including for ‘fit and proper’ assessments, has not been recovered from industry.
When will the initiative conclude?
- Additional funding will be used to complete reviews of a few remaining individuals and to deal with existing and further AAT appeals and Administrative Decisions (Judicial Review) Act 1977 (ADJR) matters in the Federal Court. It is expected that these appeals would be complete by the end of the 2006-07 financial year.
Supporting Information
National Claims and Policies Database
Why is this initiative important?
- The NCPD is an important initiative as it is designed to improve the affordability and availability of public liability and professional indemnity insurance in the Australian market and to ensure that the community benefits from tort law reforms.
– This is expected to be achieved through better assessment of risk by insurers; the appropriate determination of premiums and reserves; the development of additional products for public liability and professional indemnity insurance; and more informed commercial decision-making by insurers.
- Importantly, the database is also designed to give the Government access to comprehensive data, which will assist in understanding issues affecting the insurance market and, specifically, to assist in policy-making. APRA will also be able to use the information received to assist in the prudential regulation of authorised insurers writing these classes of business.
Who will benefit?
- Whilst insurers will be the main users of the NCPD, consumers are expected to be the main beneficiaries of the additional information in relation to public liability and professional indemnity claims and policies. The Government and APRA will also benefit from the additional information relating to the market.
What funding is the Government committing to the initiative?
- The NCPD will be funded through the imposition of a levy on APRA regulated general insurers that write public liability and professional indemnity insurance.
What have we done in the past?
- The NCPD is a Government initiative that is designed to ensure that the benefits of tort law reform accrue to the community.
– The NCPD was established by the Government in response to concerns regarding the availability and affordability of public liability and professional indemnity insurance and to assist with monitoring whether the benefits of tort law reform are passed onto consumers.
– The insurance industry has argued that a lack of comprehensive data is a significant constraint to determining appropriate premiums and limits the development of appropriate products for long tail classes of insurance such as public liability and professional indemnity.
When will the initiative conclude?
- The Government has agreed to the funding of the NCPD to 2009-10. The continuation of the NCPD will be considered ahead of the end of the current funding agreement.