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Regulatory shifts needed for general insurance sector in Australia

Regulatory shifts needed for general insurance sector in Australia

The Insurance Council of Australia (ICA), which represents non-life insurers Down Under, has said that the Financial System Inquiry (FSI) must focus on more efficient industry regulation, less restrictive prudential requirements and significant tax reform to improve the insurance sector’s contribution to Australia’s economy.

ICA made these comments in a 33-page submission to the FSI which was estabhealthlished by the government to produce recommendations to foster an efficient, competitive and flexible financial system, consistent with financial stability, prudence, integrity and fairness. The FSI will lay out a blueprint for the financial system over the next decade. The Inquiry, which started work this year, is slated to publish an interim report by September 2014 and a final report by November 2014.

ICA also said that an excessive emphasis on prudential supervision can impact on insurance market efficiency and consumer prices. The submission emphasises the importance to the efficiency of the financial system of allowing insurers to price to risk.

The trade body argued that governments should not intervene with policies that lead to the mis-pricing of insurance and the distortion of market efficiency.

It urged a level playing field in regulation, including mandatory disclosure applying equally to aggregators as to directly licensed financial entities such as insurers. The FSI would be well placed to insist upon requirements to disclose commissions and payments payable when products are featured on comparison platforms, it said.

“The insurance sector has the potential to bear more risk in the economy but the current regulatory and prudential settings are preventing insurers from taking on this risk or new risk,” ICA CEO Mr Rob Whelan said.

“With the right settings – such as relaxing prudential demands, reducing duplication between government regulators and taking away the drag on efficiency by eliminating taxes on insurance – insurance businesses can intermediate more risk.”