As financial services firms that incorporate general insurance arms continue to diversify their businesses, APRA’s move is intended to apply a workable framework to apply group wide controls. And while most of the regulators proposals met with tacit support from the industry, major flashpoints remain.

"These proposals may add an extra layer of regulation to the industry, as the provisions are clearly designed to be in addition to existing regulation at the licensed insurer level,” said Alan Mason, executive director at the Insurance Council of Australia (ICA). “ICA will be seeking some flexibility in the application of this regulatory framework to recognise this additional burden.”

Many in the insurance industry are not happy at the idea of an extra layer of what they see as prescriptive regulation forced upon them. Observers also cast doubt on how much room for flexibility APRA may offer in light of the fact that the current proposals have been the subject of extensive consultation.

“There has already been consultation, so I wonder how much more will be allowed,” said Richard Batten, partner at Minter Ellison lawyers. “They’ve been quite firm on certain points and I’m not sure realistically how open they will be to consultation. At the broader level there doesn’t seem to much scope on APRA’s part to reconsider these approaches.”

Ultimately, observers said, the industry may have to live with the changes. “It’s more flexible than originally suggested, but there are prescriptive requirements and some issues may well be seen as potentially restrictive. But at the end of the day, people will have to live with it,” said one insurance industry source.

In risk management terms, regulated groups must now ensure they pursue a group wide approach to risk management supported by an annual report from the group’s auditor on the adequacy of the risk management environment and processes.

While this is not expected to constitute an onerous workload for the industry, concerns have been flagged previously that the general insurance industry may not be at the top of its game in risk management terms. Last year a KPMG study revealed that Australian insurers had neglected updating risk measurement frameworks in favour of investing in risk management systems.

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Stuart Fagg is the Editor of Risk Management magazine, Lawyers Weekly’s sister publication