The Evolution of Solvency and Disclosure Standards in the Australian Life Insurance Industry

The Curious Case of the Occidental and Regal: The Evolution of Solvency and Disclosure Standards in the Australian Life Insurance Industry In 1990 the Australian life insurance industry was rocked by scandal which threatened to destabilise consumer confidence in the ability of insurance providers to meet policy holder liabilities. The incident highlighted the nature of the agency problems which arise when conditions of asymmetric information exist. It revealed systemic weaknesses in accounting, solvency and disclosure standards as they applied to life insurers. This paper uses an evolutionary concept of agency to analyse government and industry responses to this event. It is argued that initial adaptive responses stabilised the industry and averted a more serious crisis. Longer term innovative responses led to the introduction of a new and more rigorous approach to reporting and solvency standards which has improved information flows and agency outcomes.