In this excerpt, Senior Compliance Training Consultant, Deidre Grover, flags the raft of recent reviews and proposed legal and regulatory changes impacting insurance through superannuation.
Over 11 million Australians have insurance (life, total and permanent disability and/or income protection cover) through their superannuation. Group insurance arrangements deliver many of these people much more affordable insurance than they would be able to obtain outside of superannuation. As many of these group policies are provided on an opt-out basis, the large share of low-risk members in the pool acts to keep insurance premiums down for everyone. However, the deduction of insurance premiums from superannuation savings can be a key driver of superannuation account balance erosion and this erosion is heightened by the provision of duplicate insurance within group superannuation.
In a little over 12 months, insurance though superannuation has been considered by the Parliamentary Joint Committee on Corporations and Financial Services, the Australian Securities and Investments Commission, the Productivity Commission, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and by the Australian Prudential Regulation Authority. In addition, the Insurance in Superannuation Voluntary Code of Practice which sets standards aimed at providing clearer accountability in relation to insurance through superannuation commenced on 1 July 2018. Furthermore, the recently enacted Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 will require from 1 July 2019 a trustee to stop providing insurance on an opt-out basis to a superannuation fund member who has had a product that has been inactive for 16 months or more.
On 30 April 2019, APRA released an information paper relating to its superannuation prudential framework review. Chapter 7 of the information paper specifically relates to insurance. The review concluded that through the introduction of Superannuation Prudential Standard 250 and Superannuation Prudential Guide 250, registrable superannuation entity licensees have improved their practices in relation to all aspects of their insurance arrangements; but that many licensees continue to find insurance strategy, design and risk management challenging. APRA will be considering the most appropriate way to implement the enhancements identified in the review as it progresses its superannuation policy and supervision priorities for the next 12-18 months.
Legislative and regulatory changes to alleviate superannuation account balance erosion caused by deduction of insurance premiums may result in an upward pressure on insurance premiums. In addition, superannuation trustees will need to ensure that all necessary administrative changes are put in place in order to comply with the relevant provisions in the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 relating to the deduction of insurance premiums from accounts that have been inoperative for 16 months or more.
You can read the full whitepaper here: ‘Insurance through superannuation – where to from here?’
Written by Deidre Grover
Senior Compliance Training Consultant