APRA Focus on Group Insurance

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The Australian Prudential Regulation Authority has released a draft prudential practice guide for group life insurance arrangements, where its main focus is on the superannuation sector.

The draft guide – LPG 270 Group Insurance Arrangements, is intended to act as a good practice reference for all group insurance arrangements.  In its covering note to life company CEOs the regulator identifies three key areas of risk that its draft guidance addresses:

  1. The insurer’s risk management framework
  2. How an insurer responds to group insurance tenders
  3. Group insurance data management

While APRA says its focus is on group life, TPD and income protection insurances positioned within Registrable Superannuation Entities (RSEs), it says many of the practices in its draft guidance notes are also relevant for other group insurance contracts.

Risk Management Framework

Areas of risk identified under this guideline element include:

  • Inaccurate or incomplete claims data provided to the insurer by the RSE licensee or by a previous insurer
  • Failure by the insurer to identify adverse trends affecting future claims experience
  • Failure by the insurer to adequately allow for the cost of profit-sharing arrangements
  • Anti-selection against the insurer by new or potential members
  • High aggregate exposures to individuals who obtain insurance under several policies
  • Various other operational and legal risks

Insurance Tenders

Issues identified include:

  • Claims philosophy
  • Pricing
  • Policy terms and conditions
  • Sustainability of future rates and other terms and conditions
  • Service agreements
  • Outsourcing various business arrangements, activities

Data Management

Data management guidance refers in part to another statute that requires an RSE licensee to maintain records of the claims experience, membership, sums insured and premiums paid for the insured benefits for at least the previous five years.

Other data management issues highlighted by the regulator focus on its expectations of the insurer in relation to its own responsibilities for the maintenance of various data records relevant to the group insurance contracts, claims experience, historical information, complaints data, take-up rates, pricing and benefit design.

This initiative by APRA takes place at a time of heightened sensitivity to industry sustainability issues and will form part of the ongoing debate on this broader topic.

APRA says it will welcome any feedback from industry stakeholders.  Submissions will close on 7 March 2014, after which the regulator will consider all feedback prior to releasing the final version of its Prudential Practice Guide LPG 270 Group Insurance Arrangements.

 



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