The Australian Prudential Regulation Authority (APRA) has confirmed that the Government’s Budget moves around low account balances and making insurance within super ‘opt-in’ for under 25s will likely lead to an increase in premiums for superannuation fund members.
Appearing before the Senate Economics Legislation Committee today, APRA deputy chair, Helen Rowell acknowledged that the proposals in relation to insurance represented a significant shift in the provision of insurance.
Rowell also pointed to APRA concern around unintended consequences flowing from the Government move including increased operational risk for super funds and their administrators.
“The precise impact of the insurance proposals is difficult to assess at this time, however it is likely that the removal of these members from the ‘default’ insurance pool (together with the removal of members with inactive accounts) will create upward pressure on premiums for the remaining insured members,” she said.
“Members impacted by the insurance proposal will need to be made fully aware of the changes to enable them to appropriately consider their insurance needs and the consequences of not opting-in to insurance. Effective member communication is therefore paramount,” Rowell said.
“To implement all of these proposals, funds will need to work closely with their administrators and insurers to ensure the required system changes and amendments to group insurance arrangements are in place,” she said. “This will be challenging to achieve by the proposed implementation date of 1 July 2019 given both the complexity and extent of the changes that will be required to be made across the entire superannuation sector.”
“In particular, insurance arrangements will need to be reviewed and re-priced (taking into account actuarial input), underwriting processes reviewed and contractual arrangements re-negotiated accordingly. These processes can be highly complex and time consuming for individual superannuation funds, and will be even more so when the industry as a whole is impacted.”
“Sufficient time also needs to be allowed for effective communication to members of the changes that are being made, their expected impact and the decisions that members may need to make (particularly in relation to insurance). This in turn will require certainty in the final legislative requirements so that the nature and extent of the changes to insurance and fees can be determined by each superannuation fund, in collaboration with their service providers and to ensure funds’ current disclosure obligations are able to be met.”
“APRA is therefore concerned that unintended consequences may arise for members and there will be significant pressure on, and heightened operational risk for, superannuation funds and their insurers and administrators, if sufficient time is not allowed to implement the proposals in an appropriate and orderly manner,” Rowell said.
