Insurers’ financial imperative to fix life/risk
Australia's major life insurers have a significant financial incentive to fix problems in the sector because if the Australian Securities and Investments Commission (ASIC) were to emulate its UK regulatory counterpart, the industry could be faced with a remediation bill of over $1 billion over 10 years.
That is the assessment of KPMG Global Insurance Risk and Regulatory Lead, Rob Curtis who has used a forthcoming column in Money Management to point to the UK experience and warn that the potential financial implications for the Australian industry may be as significant as they have been for other jurisdictions.
"The roots of regulatory intervention and action in relation to conduct risk can be traced to the UK where a series of widely publicised mis-selling scandals, and the associated impact upon consumers and the industry, drove the regulator to take a more interventionist approach," he said.
"Approximately £20 billion has now been paid to customers in the form of redress in relation to payment protection insurance, which demonstrates the widespread financial impact upon firms and the scale of the impact upon consumers. In the UK, for every £1 spent on up-front compliance, up to £16 has been spent on remediation."
Curtis writes for Money Management that, in an Australian context, if ASIC was to take a similar approach, this would potentially result in potential remediation costs to the industry annually in the range of $125 million or approximately $1.25 billion for the same 10-year period as experienced by UK insurers.
Curtis said that the use of add-on premium options to existing insurance coverage had been another area that had come under increasing focus by UK regulators and was now also being examined by ASIC.
"The UK Financial Conduct Authority has levied heavy fines on some insurers for inappropriate use of such practises. The cost of redress has been approximately $40 per customer — which would result in a substantial capital provision if ASIC were to apply similar fines to Australian insurers," he said.
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