New insurance arrangements proposed to be imposed on superannuation funds will significantly test vertical integration by forcing super fund trustees to not only keep such arrangements at arms-length but obtain certification that they have met member’s best interests.
The new arrangements had been outlined by the Australian Prudential Regulation Authority (APRA) and come amid historic concerns from some life/risk advisers about the manner in which some major group insurance mandates had been handled in the past.
According to new guidance issued by APRA, super fund licensees will need to “demonstrate to APRA that an arrangement with an insurer is negotiated on an arm’s-length basis and is in the best interests of beneficiaries”.
APRA said super fund licenses would be obliged to obtain an independent certification that states it is reasonable for them (the licensee) to form the view that the insurance arrangement is in the best interests of the beneficiaries.
“APRA considers that the key requirement is for an RSE licensee to ensure that the insurance arrangement is in the best interests of the beneficiaries, and the requirement to obtain an independent certification provides independent support for this view,” the regulator said.
“APRA expects the person making the independent certification to assess whether an RSE licensee's decision to enter into, renew, materially alter or keep an insurance arrangement in place for more than three years, is reasonably justifiable as being in the best interests of the beneficiaries.
“That assessment should have regard to the totality of the insurance arrangement and all relevant circumstances at the time of making the assessment. The certification must be obtained ahead of the RSE licensee's decision to enter, renew or materially alter an insurance arrangement.”
Elsewhere in the APRA draft prudential practice guide, the regulator reinforced the need for superannuation funds to make it as easy as possible to opt out of default superannuation, which included making available to members pre-populated online forms.