APRA is urging life insurers and superannuation funds to address the sustainability of insurance in superannuation.
A statement from the authority says it has written to life insurers and registrable superannuation entity (RSE) licensees, urging them to address “…concerning trends and practices” in the provision of insurance to superannuation members.
It says it has noted “…significant deterioration in group life insurance claims experience in 2019 and 2020 with the potential for the re-emergence of unpredictability and volatility in insurance premiums”.
APRA says it’s concerned that, if the observed trends and practices continue, “…members are likely to be adversely affected by further substantial increases in insurance premiums and/or reductions in the value and quality of life insurance offered through superannuation”.
…ensure that insurance offerings and benefits are sustainably designed and priced…
It expects life insurers and superannuation funds to take steps to ensure that insurance offerings and benefits are sustainably designed and priced, provide appropriate value for members, and adequately reflect the underlying risks.
APRA has identified the need for:
- Superannuation trustees to maintain, and make available to insurers, high quality and sufficiently granular data to facilitate sustainable insurance design and pricing
- Clear insurance strategies developed and maintained by trustees, that reflect a scheme design for default insurance which carefully considers and appropriately balances their members’ needs and the cost of insurance
- Tender processes that provide adequate information and time to all participants, to enable them to consult on scheme design and appropriately price the risks and benefits
APRA Deputy Chair Helen Rowell says the provision of insurance by superannuation funds is an important component of the value provided by trustees to their members.
“For most people, the life insurance they receive through their super fund is the only cover they have to protect themselves and their family.”
She says it’s critical that these issues are addressed “…so sustainable and affordable insurance is available to members through their superannuation fund over the medium to long-term”.
“APRA will continue to engage closely with life insurers and superannuation trustees to monitor their progress as they respond to these issues, with a focus on the interests of current and future superannuation members,” Rowell adds.
Click here to see the APRA’s letter to life insurers and superannuation funds.
Has anyone ever noticed that APRA never mentions LIF when it discusses the pressures on premiums on retail life insurers? Apparently, LIF never happened! Instead, APRA prefer to insist that the crisis in IP, for example, is all about IP contracts being too generous, but fails to mention that most life insurers, since they became shareholder companies, have blatantly failed to properly cost IP contracts on the market because they fear loss of market share. All on APRA’s watch!
Now APRA, concerned about the viability of default cover in super funds, has issued another one of its motherhood statements, and apparently has identified a need for – “Clear insurance strategies, developed and maintained by trustees, that reflect a scheme design for default insurance which carefully considers and appropriately balances their members’ needs and the cost of insurance”
Translated that means that if the trustees of our friendly industry funds wish to continue to offer default cover without any underwriting, then more and more severity must be added to the products currently negotiated between trustees and insurers. Or premiums must go up significantly! And that will reduce future accumulation.
Or, utilizing one of APRA’s favorite strategies, insurers will be told they need to inject more capital if they will wish to continue run the high risk of a default cover program where the risk to the Statutory Number No.1 Fund is never calculable.
Traditionally life insurers never dabbled into group insurance until they had significant strength in their Statutory Number 1 Funds i.e. 75% or more of that Fund contained life risk policies that had been fully underwritten and priced. For example, pre-1993, group policies were largely the belly week of the larger of the life insurance companies. Business group was often only for three years whereupon there are a full review was undertaking including an assessment of claims history.
Now, with group super, default contract terms are generally limited to 3 years, but it’s now probably eight years since TAL took over default insurance for Australian super, and each year the definitions tighten. And post Hayne, outrageous claims practices cannot be used as a control measure.
The Government, driven by ASIC Report 413, with all its flaws, together with the sycophantic life insurers who grabbed greedily at the opportunity to ease retail distribution costs, must now recognize that all of this loss of profits can be put down primarily to the impact of LIF on the business strategies of established life risk specialists.
Add in FASEA, and that ASIC Advisor Levy, and no one is interested anymore in writing life risk. Consequently, premiums for freshly underwritten new life risk retail business are down at least 45%, and if truth serum was ever administered to some of our more garrulous life insurance CEOs, the true figure is probably around 60%.
Something’s gotta give. But for that to happen, someone has to be listening. Good luck!
No insurer can operate on that base of the any long period of time and the chickens are about to enter the gate to the roost. No insurer can watch the strength of its Statutory Number 1 Funds disappear into the dust, and continue to offer default cover to industry funds on the current terms.
Finally, someone has to tell Labor’s spokesman Stephen Jones that if you eradicate commissions for retail life risk, and the supply of new freshly underwritten business into those Statutory Number 1 Funds ceases overnight, all of his comrades in the industry funds will no longer be able to negotiate with Australian retail life insurers in order to offer default cover to members as a viable option. Eventually that might impact all on the contributions some of those funds provide at election time to Labor
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