The prudential regulator has warned that “the viability of life insurance through superannuation may be at risk” in a damning letter to life insurers and super licensees instructing them to “address concerning trends and practices” that could lead to further hikes in group premiums.
The letter, addressed to all group life insurance chief executives and registrable super entity licensees, said APRA had seen “a re-emergence of concerning developments in group insurance ... in relation to premium volatility, availability and provision of data, and tender practices”.
“APRA’s view is that these developments, if unaddressed, are likely to result in poor member outcomes, and adversely impact the availability and sustainability of life insurance through superannuation,” the regulator said.
APRA said following a period of premium reductions and benefit increases for life insurance in super between 2012 and 2016, insurers experienced significant losses and were forced to hike premiums, and that the regulator was concerned recent practices in the group market may see history repeating itself.
“The trends and practices which APRA has observed recently appear similar to those seen in 2012-2016, and have similarly been accompanied by a deterioration in group life insurance claims experience and significant impact on life insurer profitability,” the regulator said.
“APRA is concerned that, should these trends continue, members are likely to be adversely impacted through further substantial increases in insurance premiums and/or a reduction in the value and quality of life insurance in superannuation.
“Indeed, the ongoing viability and availability of life insurance through superannuation may be at risk, adversely impacting access to life insurance cover for a large part of the Australian community.”
APRA said escalating group insurance premiums over the past year had contributed to RSE licensees putting insurance contracts out to tender more frequently and making decisions based on price.
“APRA is concerned that, in some cases, the pricing on which tenders are being won by insurers, whilst initially attractive to RSE licensees, may prove to be unsustainable, and therefore likely to lead to significant increases in premiums at the end of premium guarantee or contractual periods,” the regulator said.
APRA said insurers were also continuing to face challenges accessing timely member data relevant to benefit design and pricing.
“RSE licensees should maintain, and make available to insurers, high quality and sufficiently granular data to support a thorough understanding of fund membership and sound insurance benefit design,” the regulator said.
“Where data and records are incomplete or inadequate, APRA expects these issues to be escalated and addressed.”
The regulator added that “should APRA not see evidence that life insurers and RSE licensees are addressing these matters, APRA will consider further action”.
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