The Insurance Council of Australia (ICA) has submitted a reform agenda to the Council of Financial Regulators (CFR), urging action on compliance burden that the organisation claims is constraining industry productivity and increasing costs for consumers.
The submission, released following the publication of “The Cost of Regulatory Burden” in November, details an examination of Australia’s financial services regulatory environment. The analysis found that general insurers incur compliance expenses ranging from $2.5 billion to $3.5 billion annually, representing 4% to 6% of gross written premium.
The ICA, representing members accounting for approximately 85% of private sector general insurance premium income, identifies the regulatory landscape as complex. The organisation’s research identified more than 300 regulatory instruments containing over 30,000 distinct obligations distributed across 25 separate regulatory agencies.
The council has characterised its position as seeking refinement rather than reduction of regulatory requirements. “Our goal is not less regulation, but better regulation – rules that safeguard customers without unnecessary complexity or cost,” the ICA said in its submission to the CFR.
The ICA said it welcomes the work undertaken by the CFR in developing a roadmap for improved financial services regulation and has identified three priority areas for consideration.
The ICA identified governance reporting and compliance documentation as primary cost drivers within the sector. Reporting obligations involve clustered submission deadlines, inconsistent thresholds across agencies, and periodic ad hoc requests that fragment compliance resources and create redundant administrative requirements.
The council proposes consolidating reporting through an integrated system utilising standardised data specifications and application programming interface architecture. Such a framework would allow organisations to submit information once for distribution across multiple regulatory recipients. The ICA suggests assigning this responsibility to the regulator functioning as the financial system’s statistical agency.
Interim measures could include strengthening the Regulatory Initiatives Grid (RIG) as a coordination tool, provided the mechanism becomes mandatory, encompasses all relevant regulators, and receives more frequent updates than the current schedule.
The ICA’s analysis determined that 66% of regulatory obligations employ prescriptive language, limiting flexibility for risk-based compliance methodologies. The council advocates for regulatory approaches emphasising desired outcomes rather than mandated processes, with scaling that reflects organisational size and risk profile.
Several Hayne Royal Commission-era regulations warrant post-implementation evaluation, according to the submission. The Deferred Sales Model enforces a mandatory four-day delay between primary product and add-on insurance sales, potentially leaving customers without coverage or forcing purchases of suboptimal products during the deferral period. Financial advice restrictions prevent insurers from discussing coverage adequacy and settlement considerations despite parliamentary findings emphasising need for customer guidance regarding sum insured.
Target Market Determination requirements under the Design and Distribution Obligations necessitate formal reviews and stakeholder notification for minor product disclosure modifications. Anti-hawking provisions similarly restrict contextual recommendations identifying coverage deficiencies.
The ICA notes that regulatory fragmentation creates overlapping requirements enforced through inconsistent processes across multiple agencies. The organisation endorses consolidating financial services legislation, establishing uniform definitions and assigning clear accountability to specific regulators, citing the 2023 Australian Law Reform Commission financial services review as providing appropriate restructuring principles.
The consolidation effort should incorporate permanent legislative embedding of temporary relief arrangements and establish mechanisms requiring periodic regulatory effectiveness assessments.
In a recent statement, ICA chief executive Andrew Hall said: “A well-designed regulatory framework can reduce these detrimental regulatory impacts, leading to lower costs and faster resolution of claims for customers and supporting innovation and competition in the industry.”
