APRA Executive Director of General Insurance and Banking Jane Magill speech to Future of Insurance 2025

Good morning. It is a pleasure to be here and to address this important industry gathering.

I want to start my remarks by acknowledging the hardship being faced by many people in southeast Queensland and northern New South Wales following Tropical Cyclone Alfred. I extend my sympathies to all those who were – and those who still remain affected. I also want to acknowledge the insurers who are on the ground, working hard to support those who were in Alfred’s path.

While the cyclone didn’t hit the mainland with quite the force we expected, there is still enormous damage. In fact, the industry has already received more than 75,000 insurance claims across home, motor and commercial policies.

The role that insurers play in such times is pivotal – listening, being available to those impacted, providing emergency response, taking decisive action on repairs, paying claims promptly – all important steps, which support people to get back on their feet as soon as possible.

It’s a reminder of the value of insurance to Australia as a whole. Safeguarding individuals and providing financial support in times of disaster also supports financial stability and consumer confidence, which in turn bolsters our wider economy.

Learning from the past and looking to the future

To date, we have seen positive signs in terms of insurers’ readiness and proactivity to respond to Cyclone Alfred. 

We know insurers reached out to something like a quarter of a million policyholders in affected regions in the lead up and during the event, explaining how to lodge claims quickly. We know than many insurers sent employees into areas that were likely to be impacted, providing on-the-ground support and shoring up supply chains. This is commendable. 

Given the recent focus on insurer responses to natural disasters, this latest catastrophe once again presents an opportunity for organisations and the industry to showcase just how it supports communities in times of crisis. Provide a positive experience for a policyholder at a stressful and vulnerable time and you will generate long-term goodwill and reputational advantage. 

Some of this has been touched on in the General Insurance Action Plan, recently released by the Insurance Council of Australia (ICA) in response to the learnings from the 2022 floods. 

Those floods were a wake-up call for all of us as to the sheer scale of natural disaster impact, we can now expect. More than 300,000 insurance claims, totalling nearly $7.4 billion, were lodged in response to the floods, from across an area that spanned over 2,000 kms from Tasmania to Queensland. 

A Deloitte report into catastrophe preparedness in Australia remarked, and I’ll quote this: “We are now living in a world where high cost, billion-dollar insurance events should be expected almost yearly.” So, the evidence suggests it is now a case of when and not if catastrophic natural disasters will occur. 

It is my hope that when it comes time to reflect on the response to Cyclone Alfred in a few weeks’ time, we will see positive signs that many lessons from past events have been heeded and incorporated into response plans in order to best support communities in time of need.

Learning from the past - to shore up the future - ties into the theme of today’s conference: future-proofing insurance and future-proofing your organisations. 

In my remarks, I’d like to reinforce several “strategies for readiness” for insurers and how APRA is working in support:

• Firstly, the critical importance of good risk management and governance.
• Secondly, the requirement for strong operational resilience in today’s digitally connected economy.
• Thirdly, the imperative for insurers to always prioritise good customer outcomes and how transparency and claims processes can support this.
• And as a related point, I’ll touch on the ongoing challenge of insurance availability and affordability.

Improved risk management and governance

As the prudential regulator, APRA’s mandate is to ensure the prudential safety and security of insurers, so that policyholders can rely on their insurance protection and live their lives with fewer worries.

To that end, two important APRA-led regulations are coming into force this year that are designed to improve resilience, governance and accountability in the insurance sector - not just general insurance but also life and health insurance as well. They are the new CPS 230 prudential standard, which deals with operational risk management, and the Financial Accountability Regime or ‘FAR’.

The new regulations aim to ensure that you, as an industry, really understand your business models, critical functions, supply chains and who within your organisation is accountable for each aspect of your operations. 

They are about getting the basics right and ensuring you will be able to meet your responsibilities, including assessing and paying claims, even in times of stress. 

In other words, that in addition to financial strength, your organisations are operationally strong, resilient and ready for the future. This is certainly the aspect that your customers are most likely to notice from a day-to-day point of view.

Clarifying the lines of accountability: FAR 

Firstly, let’s talk about FAR, which after many years of anticipation, is commencing for insurers this month. 

FAR is an important regime because it will strengthen the governance, accountability and resilience of the insurance industry, thereby protecting consumers and promoting trust and stability in the financial system. 

Following our experiences from the Banking Executive Accountability Regime (BEAR) and now FAR in the banking industry, I see it as an opportunity. It is a chance for the industry to sharpen accountability arrangements, clarify the lines of accountability to head off potential problems, and ultimately become more resilient. 

As part of our joint education efforts, APRA and ASIC have shared observations from the banking industry’s implementation of FAR. This includes a letter we published last November. Among issues we highlighted were gaps in assigning all relevant prescribed responsibilities to accountable persons, and inadequate consideration of the allocation of general responsibilities and key functions.

So, FAR is geared to help improve governance and promote a culture of responsibility. With that, I would encourage you to carefully consider which executives should hold which responsibilities within your organisations. 

Transforming operational risk management: CPS 230

Secondly, APRA’s Prudential Standard CPS 230 Operational Risk Management will come into effect this July. 

We are introducing the standard to strengthen the management of operational risk, respond to business disruptions and manage the risks from the use of material service providers for APRA-regulated entities. 

What does this mean for you? In terms of its outcome, CPS230 will help organisations to get their operational house in order. It will support you to identify, assess and manage foundational operational risks, with effective internal controls, monitoring and remediation. It requires you to have a clear understanding of the environment in which you operate with established monitoring in place.

It also means that you should be able to continue to deliver critical operations within tolerance levels throughout severe disruptions, and with credible business continuity plans. This includes being able to handle claims in a reasonable timeframe after an event that generates high demand. 

And CPS 230 will help you to effectively manage your service provider risk, by ensuring you have formal agreements and robust monitoring in place. 

The insurance industry has rapidly increased its use of external service providers for a wide array of functions in recent years, making the ecosystem more complex and requiring greater resilience to withstand times of stress.

It is a business decision whether an insurer keeps functions in house or chooses to use third party providers. It is also an insurer’s choice to distribute products via delegated underwriting arrangements if that fits with their strategic objectives.

But delegated underwriting can bring elevated risks that need to be suitably managed and reflected in your frameworks of risk appetite, controls, measurement and reporting with clear accountability. 

The simple message is that you can delegate the task, but you cannot delegate your responsibility. You’re the risk taker, which is why we license and regulate you, as a primary insurer, not your material service providers.

APRA has been doing a lot of work in this space, including meeting insurers and conducting prudential reviews to assist you in building resilience around your material service provider arrangements. On some occasions, we have also taken strong prudential supervisory action. 

We are planning to elaborate more on delegated underwriting later this year, including sharing better practices. But for now, we encourage you to consider if there is scope to enhance your risk management around your arrangements and ensure that you are managing any conflicts of interest.

In summary, CPS 230 represents a meaningful shift in operational risk management and resilience. In turn, it is critical that we all approach this standard with the clear intent of lifting the bar. And you can be assured that APRA is committed to supporting you on that journey. 

Improving consumer outcomes

Now, let me shift to discussing consumer outcomes. 

Insurance is designed to provide a safety net that instils confidence, allowing individuals and businesses to take risks and pursue opportunities without the fear of financial loss. 

Unfortunately, insurance affordability and availability remain some of the biggest challenges for consumers and the industry alike. 

The average written premium in domestic motor insurance rose another 8 per cent in the year to December 2024 – and was up 67 per cent in total from 2014 to 2024. 

If you look at the premiums for home insurance, they jumped an even higher 16 per cent in the year to December 2024 and are up 92 per cent over the past decade. 

This means that premiums have been growing much faster than wages. And while the rate of premium growth is moderating, it is still well above the rate of inflation.

Insurance coverage that is too expensive to acquire or not offered at all is a poor outcome for consumers, insurers and the government alike. 

Insurers need to balance appropriately pricing risk to remain financially sound with offering products that meet consumers’ protection needs. And right now, the rise in natural catastrophe events – combined with issues such as higher labour and material costs – is making this a real challenge.

All stakeholders have a role to play in reducing the underlying risks to address the growing protection gap. There is no easy, one-step solution. 

I am encouraged by events such as today, which bring together insurers with a range of potential partners in the technology and transformation space, because innovation – in a range of different forms – will be an important part of addressing these challenges. 

Of course, reducing the underlying risks through better mitigation, such as land use planning or improved building standards, is key. But there are still many opportunities for insurers and industry partners to think about how innovations – whether through product design, operational efficiencies or other means - can also help to address issues that impact affordability and availability. 

Enhancing transparency 

When communities are faced with such price increases, it is critical that policyholders are given clear explanations of the factors that are driving premium rises. Otherwise, trust is eroded, and the wrong assumptions can arise. 

APRA believes the industry could better explain how policies are priced and what risks are covered. Such greater transparency would be beneficial for consumers and would help to enhance trust. 

This is a theme that we have spoken about before and it remains an important one to raise again today. As my colleague Sean Carmody told this forum last year, insurers should be clearer in the following areas:

• what is and is not covered by a policy;
• the factors that drive premiums;
• which mitigation actions by consumers will, or will not, reduce premiums; and
• how insurers will use information provided to them.

As we collectively consider what innovations could support consumers, it is important to recognise that many solutions cannot be implemented by insurers alone. However, this is a space where you all can actively innovate and collaborate to improve not just the relationship with policyholders but the understanding of insurance in our communities. 

Lessons to improve claims management

Another big lesson from the 2022 floods was that it is essential for insurers to have robust and effective claims management processes in place. 

Aside from when a customer pays their insurance premiums, claims are really the main point at which policyholders engage with their insurers. They therefore have an enormous impact on how an insurer is perceived, especially in times of stress.

The 2022 floods around northern New South Wales were an extreme event and generated a claims volume that was six times higher than the average seen from other catastrophes over the preceding six years. 

They also happened at a time when the industry was struggling with COVID-era staff and supply chain shortages. 

Even so, the floods were foreseeable, and insurers could have been better prepared to support their customers. A year after the floods, many claims remained unresolved, leading to numerous complaints to the Australian Financial Complaints Authority.

As ASIC noted in its review into the performance of six insurers during and after the floods (released in late 2023):

“An insurance claim doesn’t have to be handled perfectly, but it must be handled well.”

ASIC went on to identify five areas where insurers can and should make immediate improvements:

• consumer communications;
• project management;
• identifying vulnerable consumers and complaints;
• resourcing of claims; and
• complaints handling. 

APRA endorses this list and, as I said earlier, I am hopeful that the responses to Cyclone Alfred will show that improvements have already been made in these areas. 

This latest storm is a chance for the industry to be proactive, innovative and show the progress that has been made.

Supporting decision making

Finally, you all know APRA as the prudential regulator, but we also play another role as the data collection agency for the financial system. We share insights to inform and support decision making by all stakeholders. 

We also engage regularly with other agencies and bodies working on insurance affordability issues. For example, we provide advice around the capital treatment of insurers’ use of the cyclone reinsurance pool. We are also involved in the Hazards Insurance Partnership.

In addition, APRA is currently working on its insurance Climate Vulnerability Assessment. This is due to be published later this year and will give you a more informed view of how insurance affordability may evolve between now and 2050.

A key objective of the assessment is to identify areas where adaptation needs are high and may lead to insurance protection gaps. By focusing on these gaps, APRA aims to improve the understanding of how climate change may affect insurance affordability and availability in the future. 

This work is crucial in ensuring that communities can be better informed and prepared for future climate-related events and have access to financial protection.

Prepared for future readiness

I wish I wasn’t speaking to you today in the wake of another declared catastrophe event. This, however, is our likely new reality – one where there are more, and more severe, natural disasters.

As the prudential regulator, APRA is focused on ensuring that the industry remains financially strong and operationally resilient. With measures such as FAR and CPS 230, we are striving to ensure your organisations continue to be in good shape to deliver on the promises given to consumers when they need it most. 

For insurers, it is immensely valuable to reflect on natural catastrophe events to ensure you’re prepared to help your customers to bounce back quickly after the next event. As you do so, it is crucial to be transparent with policyholders and ensure that their claims experiences are fair, positive and align with expectations.

With the focus firmly on your customers and ensuring that your basics are covered and covered well, the Australian community can look forward to having a general insurance industry that is indeed, ‘future-proof’ and well positioned to meet its needs.