APRA has started the process to implement recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry on super funds obtaining insurance from related parties, and how they classify members as smokers or other categories.
APRA has written to the trustees of all large super funds, asking for their input on changes to insurance in super stemming from the Financial Services Royal Commission.
One of the recommendations of the Royal Commission was that super funds that have a related party provide life insurance to members be required to get independent certification that the arrangement is in the best interest of members.
Royal Commissioner Kenneth Hayne, in the final report, was concerned about conflicts of interests from super funds engaging related parties for insurance.
“Entities that elect to integrate their businesses do so, overwhelmingly, for their own reasons. The entity’s motivation will usually be to increase market share, to increase revenue, to increase profit, to place commercial pressure on its competitors, or some combination of those factors,” says the final report.
“That is not to deny that benefits may ultimately flow to consumers from the integrated arrangement. But because the motivation for the integration is, ordinarily, a self-interested one, the congruence of the arrangement with the duty to act in the interests of the other must be closely examined.”
“Entities in the position of conflict described above can reasonably, and should, be subjected to a higher degree of regulatory scrutiny. As the number and nature of conflicts increases, so too should the intensity of regulatory supervision.”
APRA has now started the process to implement this recommendation. The regulator has released a consultation paper on changes to Prudential Standard SPS 250 Insurance in Superannuation (SPS 250).
APRA says that, under the proposed changes: “An RSE [Registrable Superannuation Entity] licensee will need to provide the independent certification to APRA within five business days of its receipt, and no later than one calendar month prior to the RSE licensee entering into a new insurance arrangement or renewing an existing insurance arrangement.”
In the letter to super fund trustees, APRA says it would “particularly welcome feedback on aspects of insurance arrangements that may give ‘priority or privilege’ to an insurer”.
The proposed changes to SPS250 also implement another recommendation of the Royal Commission – that RSEs be required to be “satisfied that the rules by which a particular status is attributed to a member in connection with insurance are fair and reasonable”.
The Royal Commission, drawing on work by ASIC, found that some super funds were “automatically classifying members as ‘smokers’ or ‘blue-collar workers’ unless they received specific information from the member to the contrary”, which “generally” impacted the premiums.