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Insurers and super funds need more of a ‘partnership’ approach on group insurances: Deloitte on LPG 270

New approach critical to contain group premium increases of 30% - 150% for superannuation funds


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17 December 2013:  The Australian Prudential Regulation Authority (APRA) released draft guide (LPG 270) on 10 December which provides broad guidance on practices to better identify the risks around group insurance arrangements for life insurance (and some general insurers) that provide life insurance,  total and permanent disability (TPD), and income protection insurance to registrable superannuation entity (RSE) licensees for beneficiaries. It also provides guidance for insurers on prudent practices for group insurance arrangements when responding to tenders and data management.

Deloitte Actuaries & Consultants Managing Partner and Insurance Practice leader Caroline Bennet explained that Deloitte supports the overall message in LPG 270. She said: “Insurers need to adopt better risk management practices when writing group insurances. I see more of a ‘partnership’ approach between the superannuation funds and insurers as a key ingredient of future success in the group market.”

Deloitte Superannuation leader Russell Mason explained: “In the current market we’ve seen group premiums for superannuation funds increase by 30% to more than 150%. To make sure that we contain these increases and stop insurers from withdrawing from the Australian market, it is important that we closely examine and develop a new approach to these group insurance arrangements.”

He added that, “to do so the focus needs to be on better risk assessment and underwriting practices, as well as contractual terms and data analysis.”

Bennet said: “We are already seeing insurers declining to quote and, in some cases, unable to get reinsurance support. So LPG 270 is a step in the right direction, and will encourage super funds to work far more closely with their insurers, as soon as possible.”

Bennet, Mason and Deloitte Life Insurance and Actuarial Partner Paul Swinhoe identified some key implications in LPG 270:

  1. APRA is concerned about ‘anti-selection’ by individuals taking out group cover. This means insurers may have to re-consider the high automatic acceptance limits that they currently offer. For example some members can currently take out up to $1.7m worth of death and TPD cover without providing any medical evidence.
  2. Group tenders are going to require insurers to collect more information than is currently provided, especially with regards to claims experience.
  3. APRA does not support the trend of insurers outsourcing claim decision making to third parties such as the administrators of super funds. From a risk management perspective, APRA believes claims management should stay with the insurers which is where the expertise lies.
  4. APRA supports the establishment of profit sharing arrangements between funds and insurers on a more equitable and sustainable basis than currently exists, so the funds share the risks with the insurer, rather than the group rebates simply being seen as a profit centre for the fund.

NB: Download the report here and our media releases and research at www.deloitte.com.au

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Last Updated: 

Contacts

Name:
Caroline Bennet
Company:
Deloitte
Job Title:
Managing Partner, Actuaries & Consultants
Phone:
+61 3 9671 6572
Email
cbennet@deloitte.com.au
Name:
Russell Mason
Company:
Deloitte Australia
Job Title:
Partner, National Leader, Superannuation
Phone:
Tel: +61 2 9322 5347
Email
rmason@deloitte.com.au
Name:
Paul Swinhoe
Company:
Actuaries & Consultants
Job Title:
Deloitte Life Insurance Partner
Phone:
+61 2 9322 5017
Email
pswinhoe@deloitte.com.au
Name:
Louise Denver
Company:
Deloitte
Job Title:
Director, Corporate Affairs & Communications
Phone:
Tel: + 61 2 9322 7615, +61 4 1488 9857
Email
ldenver@deloitte.com.au

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