The Australian Prudential Regulation Authority (APRA) has imposed an additional $10 million capital requirement on Pacific International Insurance Pty Ltd (Pacific), following a recent evaluation of the company’s binder agreements.
These agreements, which enable intermediaries to issue insurance policies on an insurer’s behalf, require insurers to maintain stringent oversight to mitigate associated risks.
APRA’s review identified notable gaps in Pacific’s control, accountability, and resources related to its binder holder operations, raising concerns about the strength of its risk management practices.
Pacific acknowledged APRA’s findings and committed to a corrective action plan. However, APRA indicated that additional measures are needed to ensure the proposed changes are fully implemented and effective in addressing regulatory concerns.
Commenting on APRA’s decision, APRA member Suzanne Smith highlighted the importance of accountability in outsourced underwriting.
“Outsourcing can help with solutions for hard-to-place risks or reduce operational costs for insurers, but it is crucial to understand that the overall risk stays with the insurer, as insurance risk and accountability are the reason why insurers hold licences in the first place,” she said.
She noted that APRA’s regulatory framework is aimed at protecting policyholders by holding insurers accountable to meet their obligations.
“Insurance plays a critical role in the lives of Australians to minimise risk and provide financial stability. APRA protects policyholders through its prudential framework and active supervision, so they can have the confidence that insurers meet their obligations. APRA will continue to take suitable action if insurers do not meet expectations,” Smith said.
In conjunction with the capital requirement, APRA released updated data on insurance claims and disputes across various policy types, reflecting trends as of June 30, 2024.
According to the report, funeral insurance recorded a 100% claims admittance rate for individual non-advised policies, meaning that all claims were approved. Group death insurance achieved a similarly high admittance rate of 99%, while trauma insurance had an admittance rate of 86% for group policies.
Disability income insurance (DII) reached a 95% admittance rate for individual advised policies.
However, paid claim ratios varied by policy type. TPD (total permanent disability) insurance had a 100% paid ratio for group super policies, indicating full settlement of claims in that category.
Death insurance showed lower paid ratios: 45% for individual advised policies and 81% for group super policies.
DII reflected a paid ratio of 68% for individual advised policies, rising to 99% for group super policies, showing some disparity between policy types in terms of claim payment rates.
The data also revealed high levels of disputes, particularly in the DII category. DII for individual advised policies saw 334 disputes per 100,000 lives insured, while individual non-advised DII policies recorded 425 disputes per 100,000.
TPD insurance also registered significant dispute levels, with 93 disputes for individual advised policies and 47 for non-advised.
Trauma insurance had a dispute rate of 51 per 100,000 for individual advised policies, while accident insurance saw 83 disputes and critical illness insurance (CCI) had nine disputes per 100,000 in individual non-advised policies.
