TAL insists profit sharing rebates go back to fund members

29 August 2017

Australia’s largest group life insurer has insisted to a Parliamentary Committee that any profit-sharing rebates it pays to superannuation funds have been used to benefit members.

TAL chief executive, Brett Clark has told the Parliamentary Joint Committee on Corporations and Financial Services that his company insists that the rebates are used to benefit members and that TAL has the right to audit that outcome.

He said that best practice from TAL’s point of view “is that where these rebates are paid back to superannuation trustees they are used only for the benefit of members”.

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“Indeed, in the contracts that we have with our superannuation partners, we demand it and we contract with our superannuation fund partners that the return of these proceeds will only be used for the benefit of members of the fund,” he told the committee.

“We also believe that best practice for the superannuation trustees is that they have a board-approved policy for managing and distributing these rebates and that they are also transparent and disclosed,” Clark said.

“APRA requires superannuation funds to have an insurance management framework documented as part of SPS 250. We would also say that best practice for funds is to have their practice for dealing with these rebates documented as part of that APRA guideline.”

Describing the working of the profit sharing rebates, Clark said that where premiums for group insurance arrangements were in excess of the claims paid and the expenses required to run the group insurance arrangements the excess was returned to the superannuation fund.

He said there were a number of reasons for this, including providing price stability to the market.

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Could it be argued that TAL rebates are used by certain super funds to pay for "fox in the henhouse" type ads rather than using these rebates to lower their member fees? Maybe super fees are already low enough in these super funds eyes and there is no more member benefit to reduce them even more.

yes all well and good, but aren't the rebates based on reduced successful claims, i.e. the claims behaviour is structured to benefit insurers anyway. It's a conflict that is a step away from direct remuneration, a very clever step away and difficult to detect without whistle blowers

It's unprofessional to simply throw unsubstantiated allegations around. The real issue here is openness and transparency of premium adjustment arrangements. Hopefully the changes being proposed by the joint industry group will result in an inverse relationship between clear rules and disclosure and unsubstantiated partisan cheap shots.

If that's what you want Richard, was it fought for when you were at ISA? Why is it now only coming to light that there seems to be unfair profit sharing? Why has it taken a senate enquiry to cause disclosure?

I had seen an earlier story about payment of rebates but now the situation seems to be much worse - I'm aware of an arrangement with TAL whereby the Trustee has discretion to reduce TPD payments to take account of any other benefits received by the client - the effect of this article seems to be that Trustee has a direct financial interest in exercising that discretion in a way that will cause the amount of rebate that will be received by the Trustee to be increased.

I agree, it implies that less payments out for claims equates to higher rebates under the profit share - show me the incentive I'll show you the behavior, it's not a good look if correct.

These matters have been the subject of informed and as evidenced from some comments, uninformed discussion well before any Parliamentary questioning. There is a case for the argument that the potential or perceived conflict relating to premium equalisation arrangements can't be avoided. As a result some trustees avoid such arrangements. Others point to the example of 2013-14 where insurers insisted on higher premiums, in large part incorrectly presuming a high risk environment. Where lower claims than expected have occurred this has subsequently resulted in reduced insurance premiums to members.

Where there are clear and transparent arrangements that any returned premiums are used solely for the purpose of reducing future premiums to members, is there a problem?

no problem if it's clear, disclosed and transparent and the behaviors that go with that can be identified, and it is uniform across the industry - but that's the problem, it's not any of these things - and I'd love to see the evidence of reduced premiums to members.

The rebates are largely fleeced from low income, low balance, members who haven't agreed to the cover and then used to attract new members via low fees. This is a distortion of the market and it provides perverse incentives for the super funds to load up premiums, reduce the quality of the cover and avoid claims. This behaviour is rotten to the core. All insurance should be Opt-In. If not, the regulator should at least ensure every cent from these rebates be returned ONLY to those members with insurance via a reduction in their premiums.

This stated from the same company (TAL) who have been hiking premiums by as much as 85% to customers who never chose to have the cover in the first place. Bring in opt-in. Anything other is just theft plain and simple.

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