Brokers may be forced to provide insurers with more detailed and accurate information to insurers and help them restructure their reinsurance programmes under new APRA legislation.
Insurers fear that APRA’s Life and General Insurance Capital [LAGIC], which came into force on 1 January this year, creates greater capital requirements from insurers - a move that will put brokers under added pressure.
LAGIC is a three pillar concept. The first demands insurers to have qualitative requirements in relation to required capital, eligible capital and liability valuations; the second requires insurers to have an internal capital adequacy assessment process [ICAAP] and appropriate documentation in place so the regulator can assess how risk management affects the insurer’s decisions; and third puts in place a disclosure requirement to encourage market discipline.
The changes are designed to improve insurers’ capital adequacy but brokers will have to play a key role in doing so.
“Insurers will be looking to improve the data they capture and maintain around the risks they underwrite,” Warrick Gard, partner at Ernst & Young told Insurance Business. “The information the broker passes on to the insurer needs to be more accurate and auditable – information such as location and risks will be more important to the insurer going forward. Some information that the broker holds will be much more interesting to the insurer.”
Gard said there could be specific implications for the reinsurance broker. “Insurers are looking to change their reinsurance arrangements to optimise the different capital regime and they will look to the reinsurance broker to do this,” he said.
However, LAGIC has been in force for just over four months and Gard believes it will be a few years before it is clear how insurers, and therefore brokers, work within the LAGIC.
“While 1 January was the implementation date and insurers did a lot of work to prepare for LAGIC, we expect it will develop over the next one to two years when insurers get practice working within the ICAAP framework and receive feedback from APRA.
“ICAAP will be reviewed every three years. A combination of that and insurers getting used to ICAAP will mean that LAGIC will be a continuous development.”