How superannuation trustees offer insurance to their fund members has been impacted by four significant developments that occurred in the second half of 2016.
These developments occurred in an environment where trustees face existing legal requirements to formulate and regularly review an insurance strategy for the benefit of beneficiaries and have in place an 'insurance management framework' to manage provision of insured benefits to members.
The four key developments
1. APRA review of claims oversight and governance in superannuation
On 12 October 2016, Helen Rowell of APRA wrote to the Chairs of superannuation fund trustees outlining the findings of APRA's review of claims oversight and governance in superannuation. A similar letter was sent to insurers.
APRA confirmed group insurance arrangements will remain an area of heightened focus for APRA and it expects industry practice to continue to evolve and improve.
Importantly, APRA recommended that trustees consider the findings and, where appropriate, address areas for improvement such as:
- closer co-operation and alignment between trustees, insurers and reinsurers to optimise outcomes for beneficiaries;
- clarifying the approach to claims in the 'claims philosophy' of both trustee and insurer to improve claimants’ understanding of how claims will be managed;
- better sharing of information between trustees and insurers. For example, information that could be shared more readily includes claims data and trends and regular reporting on key performance indicators; and
- reviewing design and definitions with a stronger focus on providing sustainable insurance arrangements that meet member needs at an appropriate cost.
2. FSC Life Insurance Code of Practice
The Financial Services Council (FSC) Code of Practice sets out the life insurance industry's key commitments and obligations to customers on standards of practice, disclosure and principles of conduct such as being open, fair and honest. It also sets out timeframes for insurers to respond to claims, complaints and requests for information. The Code commenced on 1 October 2016 with a transition period until 30 June 2017.
The Code applies to life insurance companies who have a membership with FSC, and to any other industry participants, including non-FSC members, that adopt the Code by entering into a formal agreement with the FSC and the Life Code Compliance Committee. The Code does not apply to superannuation fund trustees unless they chose to adopt it.
Importantly, if your insurer is covered by the Code your claims handing and communications practices will need to integrate with those of your insurer before 30 June 2017.
3. Insurance in Superannuation Industry Working Group
This group represents all major industry bodies, including ASFA, AIST, FSC, IFF and ISA as well as representatives of superannuation funds and consumer groups. Its objective is to develop a Code of Practice/Conduct for life insurance in superannuation. A Governance Board and Technical Group have been formed and Consultation Groups are also being formed with the Working Group to address benefit design, data reporting, claims handling, and member standards. The intention is to finalise the Code by the end of 2017 with improvements to industry practice being progressively delivered throughout 2017.
The industry bodies participating on this include the Australian Institute of Superannuation Trustees (AIST), the Association of Superannuation Funds of Australia (ASFA), the FSC, the Industry Funds Forum (IFF) and Industry Super Australia (ISA). The media release announcing the initiative can be found here.
4. Productivity Commission: Assessment of the Competitiveness and Efficiency of the Superannuation System
On 25 November 2016 the Productivity Commission released its report on how it will assess the 'Competitiveness and Efficiency of the Superannuation System'. In reviewing insurance, the Productivity Commission confirmed it will use 17 separate criterion and indicators to assess: "Are funds offering value-for-money insurance products, and is the cost of insurance being minimised for the level and quality of cover?"
The criterion and indicators include:
- rates of insurance take-up in choice products relative to default products
- ease of members opting out of insurance, amending cover and making claims
- insurance premiums inside compared to outside super for like policies
- ratio of claims to premium revenue (loss ratios) within super over 5 and 10 year periods.
What does this mean for trustees?
Next year, 2017, will present opportunities and challenges for superannuation fund trustees as they carefully review their insurance strategies and insurance management frameworks to integrate them with the processes of their chosen insurers.
Trustees will need to be mindful of the Productivity Commission's review and whether, as superannuation fund trustees, they are indeed fulfilling their fiduciary duties to beneficiaries - and offering value for money insurance products at the same time as minimising the cost of insurance for the level and quality of cover offered.
It's a time to ramp-up the sophistication of insurance offered through super and work to meet the needs of members in offering them this important element of financial security.