RAC Insurance hit with $20 million extra capital requirement
RAC Insurance has been ordered to put up an additional $20 million capital requirement and the measure will stay in place until the Australian Prudential Regulation Authority (APRA) is satisfied existing governance issues have been addressed.
APRA announced the extra requirement last week after the regulator’s governance review found “significant weaknesses” in areas of outsourcing controls, conflict management and board decision making at the insurer.
“Board independence and effectiveness are central elements of strong governance and were found to be lacking in our review of RAC,” APRA Member Suzanne Smith said.
“Our prudential standards make it clear that boards are responsible for ensuring the risk management framework is not only implemented but effective in practice.”
RAC Insurance is the insurance business of Royal Automobile Club (RAC) of WA. It offers home, small business, boat, life, pet and health insurance.
APRA says in an email to insuranceNEWS.com.au the “significant weaknesses” relate to the general insurance business and the governance review undertaken by the regulator was RAC-specific.
The regulator says RAC has reviewed its governance framework and is implementing an action plan to remedy the situation.
“However, further effort is required to ensure the changes are executed and embedded successfully, and to verify their effectiveness in addressing governance concerns.”
The insurer says over the past 12 months the business has been working with APRA on their observations and recommendations.
“RAC Insurance takes our regulatory and compliance responsibilities seriously and we are continuously reviewing and improving our processes and governance,” RAC Insurance CEO Andrew O’Hara said.
“RAC Insurance has commenced implementation of an action plan to address the matters raised and we are focused on executing and embedding the plan. The additional capital requirement will not impact our service to members.”
The insurer reported a net profit of $41 million, according to APRA’s latest general insurance institution-level statistics for financial years ended in the 12 months to June 30.
The business has a prescribed capital amount of $146 million, and the additional capital requirement represents an increase of 13.6%.