Profit share rebates are alive and well in the group insurance arena, with major insurer, TAL, having told the Productivity Commission (PC) it expects the payment of such rebates will be used for the benefit of members.
TAL’s submission to the PC Inquiry into Superannuation Industry Competitiveness and Efficiency said that profit share rebates “are provided as mechanism to return an agreed percentage of profits on insurance policies (due to better than expected claims experience) back to members”.
“They are paid as either lump sums or as an offset against future premium,” it said. “TAL pays these rebates on the expectation (and often on a contractual assurance in the policy) that the funds are used for the benefit of members.”
“We believe that profit share rebates are a fair way to deal with contingency allowances in pricing due to uncertainty of claims experiences,” the TAL submission said.
The insurance company, which holds mandates for a number of the large industry funds including AustralianSuper, said it was particularly difficult to accurately predict when an adverse claims experience would arise and, once it had arisen, stabilise.
“These rebate mechanisms operate to temper the fluctuations that occur in profitability due to claims experience and operate as a cap to profits that life insurers can enjoy and facilitates the provision of more cost effective insurance for members,” it said.
“In our experience we have found that profit share rebates create alignment between funds and insurer. There is no evidence that rebates drive incentive for trustees to act inappropriately.”
