FSC supports APRA’s changes on insurance in super

The Financial Services Council (FSC) has supported the proposed changes made by the Australian Prudential Regulation Authority (APRA) regarding the insurance in superannuation framework, including those changes addressing the recommendations of the Royal Commission.

However, in a submission to the review, FSC expressed a number of concerns regarding the introduction of several new terms which were not defined or explained.

“Overall, we are satisfied with the scope of the proposed changes, however we have highlighted some changes which require either amendment or clarification,” the FSC said.

With regards to the requirements for trustees to obtain independent certification of certain matters, the FSC said that current drafting of the standard was unclear in which circumstances an independent certification was required.

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The council recommended that where an registrable superannuation entity (RSE) licensee entered into an insurance arrangement or any other arrangement in relation to the provision of group insurance which it was with a related party insurer; or by giving priority or privilege to an insurer, then the RSE must obtain independent certification that the insurance arrangement or other arrangement.

Additionally, according to the FSC, to avoid confusion, the proposed scope of the independent certification should make clear that the certification would be used by the trustee to help form a view on the selected insurance arrangements.

“Accordingly, we suggest the scope of the independent certification provide advice more in the realm of negative assurance,” the FSC said in a submission.

The council also noted that it was unclear in the current drafting who was considered to be a related party insurer and recommended APRA to provide a clear definition of what constituted “priority and privilege”.

What is more, as far as frequency and timing was concerned, the FSC said: “It is unclear in the current drafting as to what date “entering into” or “renew” refers to. For example, an insurance contract may often have an execution date and an effective date which may not be the same.”

According to the FSC, it also remained unclear as of when the obligations of the standard applied.

“We recommend that the transition provisions in the Standard are made clear so that where insurance arrangements are entered into:

• Prior to the registration date: the trustee must use reasonable endeavours to ensure that they comply with the obligations under paragraph 18; and
• Between the registration date and 1 January 2021: that the insurance arrangement have in place provisions which are consistent with paragraph 18.

It should be made clear that in both instances, independent certification should only be required on a biennial (or as otherwise amended) basis if the term of the policy exceeds three years, in this case by 1 January 2023.”

The FSC noted that the findings of the Australian Securities and Investments Commission (ASIC) aimed at reviewing total and permanent disablement (TPD) insurance claims found that insurer did not have sufficient understanding of the reasons for withdrawn claims and recommended that insurers and superannuation trustees should review their policies.

“We encourage APRA to work closely with ASIC to ensure that there is an alignment of regulatory expectations and data requirements for insurers and trustees,” the FSC said.