Super fund life/TPD premiums queried

The Australian Prudential Regulation Authority (APRA) has been asked whether superannuation funds have been using default premium settings for life/risk cover which are higher than some members actually need.

APRA has not confirmed the reality of the situation but acknowledged that such practices are outside the legal framework covering superannuation funds.

The regulator was asked by West Australian Labor back-bencher, Tania Lawrence if “some superannuation funds have a default setting whereby insurance premiums for life and TPD are charged at higher, nominally blue collar rate unless members actively apply for a lower, white collar or professional rate”

“This has occurred notwithstanding that when members join super funds, they fill in details of their employment, so in fact the super fund has already received notice of their type of employment,” Lawrence said in a written question on notice to APRA.

“Members who should have been charged at the cheaper rate have arguably been wrongly disadvantaged to the tune of hundreds of dollars, plus investment returns/interest foregone.”

“Does APRA have an attitude to this practice? Has it taken any action or given any advice to super funds in relation to this? Is legislation needed to correct it?” Lawrence asked.

APRA’s forma response said that “trustees are required under the current legal framework to be able to demonstrate their insurance in super settings result in the fair and equitable treatment of members”.

The regulator said that its prudential requirements and guidance required superannuation funds to be able to demonstrate fair and equitable treatment.

“APRA considers that ‘fair and reasonable’ in this context would require that the rules that apply to an RSE licensee or an insurer would be applied in an equitable manner to take into account the financial impact of attributing a particular status to a beneficiary, cohort or class of beneficiaries. This is particularly important where it may affect the premium to be charged for insurance. For example, a status such as occupation class/type of ‘blue-collar’ or ‘while collar’… affects the premium to be charged,” it said.

APRA said it had written to the industry in December, last year, noting the importance of insurance in super and highlighted the need for insurance offerings to be sustainably designed and price to provide outcome that are of value to members and the importance of data quality (including occupation data) in the design and pricing of insured benefits,” the APRA response said. “

APRA’s supervision is focused on ensuring the industry meet these requirements to support the best possible outcomes for their members. APRA strongly encourages RSE licensees, life insurers and reinsurers to work together to obtain data to ensure that the default insurance offering is appropriate for the insurance needs of member cohorts.”