Insurance giant Medibank has warned that the “fatal trap” of the financial crisis could put the economy at risk in the future.
Key points:The Australian Financial Survey showed insurers were seeing an “increasing number of people entering into a financial arrangement which does not align with their current investment portfolio”The survey found that about one in five insurers said they had experienced a financial crisis in the last 12 monthsSource: Australian Financial Report|The Australian Securities and Investments Commission (ASIC) has issued an alert to insurers to “take care” when it comes to protecting themselves from a financial disaster, saying that “insurers need to plan for the worst”.
Key pointsThe ASIC is recommending that insurers have contingency plans in place to deal with a financial catastropheThe ASI’s advice to insurers was published on MondayMr Scott said the ASIC was recommending that “every insurance company should have contingency planning in place” to ensure that they were able to survive the “torturous” financial crisis.
“If you have contingency arrangements in place, you have to make sure that your insurance is available, so you can protect yourself,” he said.
“And you have got to plan what your risk profile is going to be when it is not a crisis.
And then if it is a crisis, you should prepare.”
Mr Scott also said insurers should consider the impact of any loss of business.
“When you lose your business, there’s always a chance you’ll lose some people.
It’s just one of those things where it’s going to hit a certain number of employees,” he explained.”
We are all in this together.
So we need to work together to mitigate that, to plan how we’re going to cope.”
Mr Allan said insurers were “trying to anticipate what’s going on” but “they’re not getting it”.
“I think what’s happening is we’ve got this huge economic recession, we’ve had the biggest downturn in history, and there’s been a lot of negative news coming out of the banking industry,” he told ABC Radio Melbourne.
“The big banks are taking a hit, they’re taking a big hit from consumers, they’ve had a lot less money to invest in their businesses, so they’re looking for ways to minimise their losses.”
The ASICS warned that “people are becoming more aware of the potential impact” of financial crisis and “the risk that a financial collapse may result from a catastrophic event”.
It said that as the financial system became “more stressed and more unpredictable” insurers “need to be prepared for a crisis which could result in financial losses for the business”.
Mr Allan also said the Australian Securities Exchange (ASX) was “in a very difficult position” and that it needed to “act quickly” to protect investors.
“It’s a tough business to do business in, but we’re trying to do the best we can to protect the interests of our investors,” he added.
“I don’t think we’re seeing a lot more people looking into the insurance industry.”