Superannuation funds have been reducing automatic acceptance limits and have been shifting to income stream rather than lump sum total and permanent disability (TPD) benefits to help overcome their group insurance problems, according to the Australian Prudential Regulation Authority (APRA).
It said that some superannuation funds, in consultation with their group insurers have also been tightening TPD definitions.
However in pointing to the changes being imposed to group insurance arrangements, the regulator has warned against superannuation funds moving on such issues without ensuring the strategies are in the best interests of members.
In its latest APRA insight publication, the regulator suggested super funds should make sure they understood their membership demographics and behaviours before imposing such changes.
“There is room for enhancement in the quality and depth of registrable superannuation entity (RSE) licensees’ analysis of membership demographics and behaviours when considering any changes to the benefit design to ensure that any changes are appropriate and relevant for the fund membership,” it said.
It said RSE licensees needed to consider the erosion of benefits covenant, albeit there were varying approaches to assessing the implications of the covenant for insurance benefit design.
“APRA expects RSE licensees to be examining the features of their insurance benefit design which may not be sustainable and/or affordable for members and to appropriately address these matters,” the APRA publication said. “In doing this, RSE licensees should have a sound understanding of their membership profile to help form a view on member best interests before implementing any changes to the benefit design.”
A panel of industry experts has been convened by Money Management and its sister publication, Super Review to review the future of TPD insurance at a thought leadership breakfast in Sydney on Friday, 28 August. www.moneymanagement.com.au/events
