Cost, cyber and climate
Seeing connections: APRA’s Suzanne Smith says there are links between general, life and health insurance
The sudden collapse of Silicon Valley Bank in the US and further ructions following rising interest rates is the latest reminder of the curveballs that the can roil financial companies and have cascading implications.
Australian Prudential Regulation Authority (APRA) Executive Board Member Suzanne Smith says the local environment is different to that of the US. It has comparative strengths, but such events highlight the importance of firms stress-testing various scenarios.
“All businesses need to understand the strategy they have, understand the risks of the market that they’re working in and stress-test their portfolios,” she tells Insurance News.
“Even with the stresses that you don’t imagine would ever happen, you’ve got to really think big and broad on ‘actually, could this happen?’.”
Ms Smith was appointed in October as APRA’s Executive Board Member with responsibility for private health and life insurance, and from mid-year will also take over general insurance from Helen Rowell, whose term is ending.
APRA ensures Australians’ financial interests are protected and that the system is stable, competitive and efficient. Ms Smith, who started with the regulator in 2019 in the superannuation area, says it’s a privilege to be involved in the oversight of the financial system.
She was MLC Life’s chief customer officer for group insurance immediately before joining the regulator.
“I learned a lot about insurance at that time and the critical role it plays in the community,” she says. “It’s such an important element of financial stability. I think getting a chance to get back into insurance was really exciting, and then particularly extending that out to the health and general insurance sectors as well.”
The three insurance strands have different drivers and legislative frameworks, but Ms Smith says they can be considered holistically and there is potential for “greater intersection” in some regards.
“If you are looking at the totality of someone’s wealth, general insurance has a really important role to play, as life does, as health does,” she says. “As a portfolio, I think about it as a whole-of-wealth picture.”
APRA priority areas include affordability and availability issues, cyber security and climate change risks.
Medibank Private last year became the first APRA-regulated entity to experience a major cyber attack, reporting a breach in mid-October. Ms Smith says it highlighted the shift from locking down systems to the weaponisation of data.
“I think it was a major wake-up call for the whole industry, in that cyber attacks are a reality and it was always a matter of when, not if. It’s really highlighted that vigilance is critical. Complacency is dire.”
APRA is asking questions of institutions on their knowledge of the data they hold, systems, safety and even whether they need to keep all the information they have gathered.
“Whether you’re an insurer, a bank or a superannuation fund, cyber is front of mind for us, and it is an area where we’ve seen good collaboration,” Ms Smith says.
“Cyber isn’t an area to compete on, where you’re differentiating. Cyber is an area where industry needs to really collaborate and strengthen knowledge and capability to keep the bad guys out.”
Climate change-related issues include investments, transition risks, exposure to stranded assets and questions for general insurers around how they can continue to offer cover in areas prone to weather-related disasters such as flood, bushfire and cyclone impacts.
“It feels like that’s the new normal, so insurers really need to be thinking about the products, that they continue to innovate and evolve to ensure that Australians can still get access to insurance in these regions,” she says.
General, life and health insurance all face affordability and accessibility pressures. APRA wants people to be able to obtain insurance, while products must be sustainable.
Ms Smith says in disability income insurance, appetite for growth led to prices dropping and more generous policy terms, which became a perfect storm as rising mental health claims and other impacts led to a spike in claims and led in turn to profitability problems.
“We intervened there to say you can’t keep going like that, because you need to be around to meet your obligations and keep that promise of paying claims if and when they arise,” she says. “While we have seen some improvements there the job isn’t done.”
The Quality of Advice review completed last year recommends changes that the financial services sector says will simplify processes, reduce costs and make advice more affordable. The Federal Government is consulting on the proposals.
“We know that Australians can access insurance and superannuation through a range of mechanisms, but advice is a really important part of that,” Ms Smith says. “We hope some of the recommendations through that review will see the light of day.
“As to what they are and where they land, we need to wait for the Government to release their views.”
Ms Smith’s earlier career included senior roles within NAB and working in commercial property, while initially she trained as a nurse, acquiring valuable skills during the steep learning curve of a hospital environment.
“You’ve got to solve problems and think quickly and bring the right people together to get things done,” she says of her hospital training. “There are crises happening all the time, so you’re pivoting from one thing to the next. I think it gave me confidence to be in environments of ambiguity that are fast paced and changing.”
Ms Smith notes that different career pathways are also another element of an organisation’s diversity.
“You don’t have to have grown up as a maths geek, or have followed the purely actuarial path or what have you, to do the roles that we do,” she tells Insurance News.
“It’s about bringing a whole range of different experiences to the table so that when we’re collectively as an APRA board thinking about what the challenges are, we’re thinking with different hats on – that it’s not group-think.”
Ms Smith says having industry experience provides valuable insights, and APRA is mindful of potential burdens on entities as changes are considered.
Examples include the sharing of APRA-collected data with regulatory peers to avoid duplication, as more information is gathered and greater granularity sought to detect emerging issues and trends.
“Reducing the burden and cost is important, but equally as the industry evolves the data that we need is continuing to change as well,” Ms Smith says. “We’ve got to find the right balance.”
And APRA’s approach to fulfilling its prudential oversight mandate means consultation and being accessible to the industry is key.
“It is important for us to be in the conversation,” Ms Smith says. “Regulators, insurers, consumers, government – everyone has a role to play in evolving and strengthening the system.”