The Australian Prudential Regulation Authority (APRA) has applied an additional $10 million capital requirement to Pacific International Insurance Pty Limited (Pacific) following a review of its binder holder arrangements. These are arrangements that authorise an insurance intermediary to issue policies on the insurer's behalf.
The review identified fundamental deficiencies in Pacific's oversight and control of its existing binder holder business and risk management framework. These included weaknesses in accountability and adequacy of resourcing.
APRA acknowledges that Pacific has accepted the findings from the review and is committed to its remediation action plan. However, further effort is required to ensure the changes are executed and embedded successfully, and to verify their effectiveness in addressing APRA's concerns.
APRA Member Suzanne Smith said that while the authority for underwriting can be outsourced the responsibility remains solely with the licensed insurer.
"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.
"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", Ms Smith said.
