The Australian Prudential Regulation Authority’s (APRA) has announced it will be establishing and enforcing prudential standards and practices in regards to the Australian bushfire season 2019-20.
APRA Executive Director, Sean Carmody has said that the standards have been designed to ensure that financial promises made by institutions it supervises are met within a stable financial system.
Carmody said: “In the case of the insurance industry, this primarily means ensuring insurers have the financial and operational resources to pay the claims of their policyholders as and when they fall due.
“The 2019/2020 bushfires have underscored the importance of a financially sound and resilient insurance industry because of its important role in helping the community recover from catastrophic bushfires and other natural disasters.
“Notwithstanding recent events, the prudential soundness of the general insurance industry remains robust.”
Despite insured losses from four Insurance Council of Australia (ICA) declared catastrophes between November 2019 and February 2020 totalling more than $5 billion, general insurers had adequate capital, liquidity and reinsurance arrangements to meet their obligations to policyholders.
“This bushfire season also highlighted the importance of accessible and affordable insurance coverage. Available and affordable insurance is essential to avoid the detrimental impacts of underinsurance and non-insurance,” he continued.
“APRA has a strategic focus on addressing and mitigating underinsurance given the likely social and economic impacts which may have broader implications on the stability of the financial system.”
APRA’s view is that an enduring solution to insurance affordability and availability challenges needs to focus on the underlying causes.
Investing in the types of resilience measures needed to better protect Australian communities comes at a cost, however it should be taken into account that the cost will be lower than both the financial costs of recovery and the impact to people’s lives.
It is clear that climate change will continue to drive an increase in the frequency and severity of extreme weather events in the future and will also drive regulatory developments here and internationally.
