Business interruption (BI) insurance has been a source of dispute across Australia since the COVID-19 pandemic hit the country. As a result, the Australian Prudential Regulation Authority (APRA) has asked insurers to review their insurance risk management (IRM) frameworks.
According to the APRA, many insurers providing BI insurance were exposed through policy wordings that had not kept up to date with changing legislation – raising concerns about the strength of insurers’ risk management frameworks.
In response, the APRA is urging insurers to undertake a self-assessment of their IRM frameworks in the BI context to prevent similar problems from occurring. The review also focuses on cyber risk, but the regulator expects insurance providers to ensure their risk frameworks are robust across all product areas and potential exposures.
APRA deputy chair Helen Rowell said the COVID-19 pandemic had raised concerns about how well some insurers are managing risks.
“Although the legal disputes around BI cover for some COVID-19 claims have yet to be fully resolved, the fact that so many insurers were selling policies with outdated wording exposes clear deficiencies in risk management,” Rowell said in a statement.
Aside from examining the root causes of BI problems, the APRA aims to identify whether similar hidden issues exist in other insurance products – with the growing threat of cyber adversaries “making this a prudent place to probe.”
“Where the self-assessments identify material concerns, APRA will consider whether further supervisory action is warranted. The consolidated findings will also be published to send clear messages to all insurers around observed weaknesses, better practice, and the importance of maintaining robust insurance risk management frameworks,” Rowell said.
The APRA has published a letter and guidance material supporting the self-assessment exercise. It urges non-participating insurers to consider whether a similar self-assessment would enhance their risk management practices.
Self-assessments must be completed and submitted to APRA by November 30, 2021.