Geoff Summerhayes, Executive Member - Parliamentary Joint Committee on Corporations and Financial Services Inquiry into the life insurance industry, Sydney
The Australian Prudential Regulation Authority (APRA) welcomes the opportunity to brief to the Parliamentary Joint Committee on Corporations and Financial Services Inquiry into the life insurance industry and answer your questions.
APRA’s submission to the inquiry covers five chapters:
- Overview of the life insurance industry.
- Australia’s system of financial regulation, including APRA’s mandate and the core capabilities in place to deliver it.
- APRA’s core functions and discusses the toolkit of responses available to address emerging issues.
- Recent prudential activities in the life insurance industry.
- Legacy products in the life insurance industry.
I would like to briefly update the Committee on the matters raised in our Submission in particular recent actions APRA has taken. I want to cover three areas in my opening remarks: claims, legacy issues and CommInsure.
APRA has been working closely with ASIC to address any weaknesses identified in the way life insurers manage claims. Life insurers recently have provided to ASIC and APRA independent reviews undertaken of their claims handling. We will analyse these to ensure they demonstrate adequate governance and oversight by life insurers of their claims processes. Where necessary, we will raise directly with insurers any particular issues of prudential concern.
In addition, arising from ASIC’s Report 498 on life insurance claims issued in October 2016, APRA is working with ASIC to introduce a regular collection of standardised life insurance claims data. Accurate and timely data is imperative and a staged development of this process is critical to ensure effective capture of information that is useful for regulators, industry and consumers. We are consulting with industry to design and test the new collection and also will consult with consumer representatives. A major milestone will be a trial data collection to be undertaken in May 2017.
We have highlighted in our Submission our focus on the complex legacy issue of long term life insurance contracts and old systems. In a recent speech, APRA Chairman Wayne Byres said APRA wants to see all regulated industries invest appropriately in back office functions and not only in front-end systems. This is especially crucial for life insurers.
As we said in our Submission, we strongly support the Financial System Inquiry’s (FSI) recommendation #43 for regulatory reform as well as a more comprehensive effort by industry to address legacy for the ultimate benefit of policyholders. APRA will continue to increase the pressure on insurers to invest more in this area, so that their systems and processes are more capable of meeting community and policyholder expectations.
To that end, APRA is engaging with a range of industry participants — system vendors as well as life insurers — to apprise ourselves of current industry thinking and plans as part of encouraging life insurers to deal more proactively with this issue.
Our work with CommInsure has focused on two main issues.
First, APRA has engaged with the Board and senior management of CommInsure to gain assurance over the robustness and completeness of the independent reviews commissioned to investigate the allegations, and ensure that stakeholder and community expectations are considered through this process. APRA has met with the independent reviewers and these reviews are now complete.
APRA is satisfied that the reviews are robust, complete and independent. APRA now will focus on CommInsure’s implementation of the reports’ recommendations.
Second, we have also met with the whistleblower who brought the issues to light; and are considering whether the whistleblowing provisions in the Life Insurance Act designed to prevent the identification and victimisation of whistleblowers have been adhered to. We are now seeking independent advice on these matters in order to conclude our current inquiries.
With that brief update, my colleagues and I are happy to answer the Committee’s questions.