APRA to Group Insurers – Learn from the Past

0

The Australian Prudential Regulation Authority has not ruled out the possibility of further supervisory action in the group insurance market, warning insurers to learn from the lessons of the past.

The cautionary message was delivered via a discussion paper, released to group insurers this week, which details APRA’s findings from a recent information gathering exercise. Last year, APRA asked insurers to provide a summary of their experience over the last three years, and the actions that had led to that experience. A summary of these findings has now been released to insurers by the regulator, in the hope it prompts further consideration and adoption of revised processes across a range of business and risk areas.

APRA encourages insurers to document lessons learned from this recent experience

In the cover letter accompanying the findings, APRA Executive General Manager, Diverified Institutions Division, Brandon Khoo, said it was important that insurers carefully consider the various matters discussed, particularly as some of the issues in more recent times have also been seen in the past. “APRA encourages insurers to document lessons learned from this recent experience and where necessary adopt revised approaches so as to be better prepared to respond in future,” Mr Khoo said.

The discussion paper highlighted that APRA had been closely monitoring the experience in the group insurance market for some time, noting that insurers who took action in 2011 and 2012 were ‘generally better prepared for worsening conditions and sustained smaller losses’.

APRA observed that the success of the insurer’s response to the worsening market conditions reflected the effectiveness of enhanced oversight by the board. However, APRA also noted that most insurers had not changed their risk appetite and risk management framework in light of the recent group insurance experience, and questioned whether this approach was ‘sufficiently effective’ to respond to issues like those recently experienced.

Claims management was similarly identified as a key focus for group risk insurers. The regulator encouraged insurers to review their claims assessment procedures, and make improvements such as:

  • Increasing focus on mental health issues
  • Increasing focus on early intervention and rehabilitation
  • Reviewing claims processes more frequently
  • Enhancing claims reporting
  • Increasing staff training and resourcing in the claims department

APRA said that insurers need to be satisfied that claims are assessed fairly and in accordance with the policy terms, and highlighted the importance of a clear claims philosophy.

The regulator also asked insurers about data, noting that the data made available to insurers by trustees had often been inadequate and of poor quality. ‘This undermines an insurer’s ability to analyse claims experience and set premium rates,’ APRA said in its communication.

However, the regulator said it was pleased to see insurers responding to this issue, and including data quality requirements as conditions in tenders. Most insurers have reported to APRA that there have been significant changes made to enhance data quality, including a combination of collecting more data and/or improved data checking.

The regulator also acknowledged that an increased level of engagement at an industry level to identify issues and possible solutions – such as round tables and group insurance ‘summits’ – appeared to have been effective in galvanising insurers to develop coordinated responses.

APRA said it would discuss the findings from its information gathering exercise in its regular interactions with group insurers over the coming months, together with the insurer’s views and intentions with respect to those findings.

The regulator has also released new performance figures for the risk market. Click here for more.