APRA Moves May Lead to Insurer Consolidation

In an article which appeared in Risk Management Magazine this week, the question is posed as to whether the "Australian Prudential Regulation Authority's (APRA's) recent swathe of new insurance regulation could prompt further consolidation in the industry".

This is but one example of the surge in compliancy that the overall finance sector is being impacted by, courtesy for the most part, APRA's regime of standards pertaining to internal controls and the like. Despite the obvious rise in cost of business for the affected businsses, naturally industry "outsiders" view these new requirements as positive. But what are the real impacts on the businesses that make up the finance sector?

Confusing the issue for finance sector decision makers is the potential conflict between industry regulators. Within the article Fred Hawke, partner specialising in insurance matters at Clayton Utz comments;

The ACCC would like to see more diversity in the insurance industry - that's in conflict with APRA's role which is made easier with fewer companies to regulate. Obviously APRA's job is easier if it is supervising six major insurance companies than 100 little players scratching around. But of course there is far less competition with fewer companies.

We are all aware of the need to ensure the robustness and integrity of our financial institutions, but what cost will the consumer and business markets pay in the process?