The prudential regulator has removed the requirement for registrable superannuation entity (RSE) licensees to acquire an independent certification for insurance arrangements that the fund has given priority or privilege to an insurer.
The Australian Prudential Regulation Authority (APRA) said in a letter to RSEs that it recognised that the mandate could result in unintended consequences.
“Industry feedback has indicated that the majority of insurance arrangements across the industry could fall within the definition of priority and privilege arrangements,” it said.
“Therefore it is important that RSE licensees ensure that the risks that arise from such contracts are appropriately identified and managed.”
APRA said it intended to amend the prudential framework to reflect the intent of the Royal Commission recommendation with respect to priority and privilege arrangements by:
- APRA power to require independent certification in SPS 250: in addition to maintaining the requirement for independent certification for related party insurance arrangements, APRA intended to include a provision in SPS 250 for APRA to require an RSE licensee to obtain an independent certification. This is intended to be a reserve power that it is likely to be used in limited situations;
- Expanded scope of the insurance management framework in SPS 250: APRA intends to require that RSE licensees’ insurance management frameworks (IMF) include consideration of any contractual terms and business practices that may indicate conflicts and/or 'priority and privilege'. Further, the comprehensive review of the IMF (undertaken every three years by an operationally independent person) will be required to assess whether there are any such provisions or practices with respect to insurance arrangements, and to assess the appropriateness of these provisions and practices, and whether they are in the best financial interests of beneficiaries; and
- Express consideration of priority and privilege provisions in delivering member financial outcomes in SPS 515: APRA intends to require RSE licensees to consider whether any ‘priority and privilege’ provisions in insurance arrangements are affecting the insurance outcomes for members (as reflected in the Business Performance Review (BPR) and annual outcomes assessment in Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515).