APRA says get rid of the frills in group insurance

Mike Taylor

Managing Editor and Publisher

11 December 2023

Life insurers and the superannuation funds providing group insurance have been sent a clear message by the Australian Prudential Regulation Authority (APRA) that their insurance offerings need to be fit for purpose with no undue add-ons.

The regulator has written to all superannuation funds and life insurance chief executives outlining its expectations based on a survey conducted of the funds, life insurers and re-insurers in late 2022.

And primary amongst the message being sent by APRA was that the funds and their insurance will need to have in mind member best interests in terms of not only policy design but premium stability.

For the funds APRA said it wanted to see superannuation licensees conducting a detailed review of the terms and conditions of the insurance offering considering the member demographic, including identifying and removing or changing terms and conditions of insurance offerings that are of little benefit to their broader memberships.

It said it was referring to offerings such as life events cover which was likely to be of use to only a small number of members but potential lead to higher premiums for all members,

APRA’s letter said that super fund licensees should also be considering the appropriateness of offering high levels of death and TPD cover where those levels were not subject to underwriting and should be considering the benefit term for income protection for default members.

It should this consideration should be against the background of noting that a longer benefit term will result in higher premiums “which may lead to increased erosion of superannuation benefits”.

The APRA letter also suggested that life insurers address the sustainability and viability of product features and the suitability of the product being offered to members’ insurance needs.

It said they should also consider whether the products being offered represented value for money.