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Additional scrutiny needed for group life policies
The Royal Commission’s (RC) final report has advised on additional scrutiny for registrable superannuation entity (RSE) licensees that engage a related party to provide group life insurance, or who enter into a contract with a life insurer.
Under this recommendation, licensees would be required to obtain and provide to the Australian Prudential Regulation Authority (APRA) independent certification that the arrangements and policies entered were in the best interest of members and would need to satisfy legal and regulatory requirements as well as demonstrate how they would meet the expectations of SPS 250.
Additionally, Commissioner Hayne stressed that the requirement for independent certification would reinforce to RSE licensees “the paramountcy of member’s interests and give members comfort that the arrangements are appropriate”.
“I have set out elsewhere in this report my concerns a about the conflicts that arise where related parties are engaged. These concerns have equal force in the context of group life insurance,” Hayne said in the report.
“Entities that elect to integrate their businesses do so, overwhelmingly, for their own reasons.”
He also stressed that those entities were typically motivated by attempts to increase their market share, revenue and profit and place commercial pressure on their competitors, or “some combination of those factors.”
“That is not to deny the benefits may ultimately flow to consumers from the integrated arrangement. But because the motivation of 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.”
The recommendations also called for the legislation of universal key definitions, terms and exclusions for default MySuper group life policies.
This would include the review of:
- The merits of prescribing higher minimum coverage for life insurance than is currently provided by the Superannuation Guarantee (Administration) Regulations;
- The merits of prescribing minimum coverage for permanent incapacity insurance;
- The merits of prescribing maximum coverage for life and/or permanent incapacity insurance; and
- The merits od prescribing a fixed level of coverage for life and/or permanent incapacity insurance so as to set a standard amount of default insurance across all MySuper products.
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