Regulatory hurdles that continue to challenge the industry

Regulatory hurdles that continue to challenge the industry

The recent amendments to Prudential Standard SPS250 are further proof that APRA is keeping the superannuation industry on its toes when it comes to members’ best financial interests.  

The Standard requires Registrable Superannuation Entities (RSEs) to further protect members from potential adverse outcomes caused by conflicted life insurance arrangements and, in doing so, include robust decision-making in the negotiation and ongoing review of insurance arrangements.

There is a short implementation window for the revised prudential updates and IQ Group is supporting clients in this regard.

APRA’s primary focus for trustees to select, manage and monitor their group insurance policies will have a significant impact on operations. Here’s our insight into what has changed and where the greatest impact will be felt.

Independent Certification
The first change to note is the requirement to obtain an independent certification to review related party insurance arrangements before entering contracts, or materially altering, an insurance arrangement on a 3 yearly basis.

This is particularly relevant to super funds that are within vertically integrated structures that also deliver group risk insurance.

APRA has made this core change to the standard to ensure that trustees are aware of anything, within insurance arrangements, which may not be in the members’ best financial interest and that an independent external party is engaged to avoid any perceived conflict of interest in confirming this determination.

Priority or privilege
The Standard also requires trustees to avoid any conflicts based on “priority or privilege”. So, what does priority or privilege actually mean?

The changes state that a “priority or privilege” may occur where:

  • the terms of an arrangement provide an insurer with a current or future competitive advantage relative to other insurers, or
  • the terms of an arrangement favor the insurer relative to the RSE licensees or beneficiaries.

It applies when an insurer is not a connected entity of an RSE licensee but has been selected to provide insurance cover for the RSE’s members.

The recommendations from the Royal Commission outlined that, regardless of the related party status of a group insurer (connected or non-connected), the safeguarding of members’ interests remains the number one priority. Increasing the emphasis on members interests has been an increasing priority for APRA in the past few years.

APRA considers that independent certification is most likely to be provided by auditors, actuaries, or legal firms qualified to offer an unbiased, informed, and independent opinion. However, this will likely result in increased compliance and governance costs which could, in turn, increase administration fees for fund members.

The change will require a fresh new level of transparency when funds arrange and manage group insurance contracts.

Data Management
Another important change is the requirement for RSE’s to strengthen data management and improve analysis of member outcomes across different cohorts. RSEs are required to use the improved analysis to ensure that the type and/or level of insurance offered does not inappropriately erode the retirement income of beneficiaries.

The timeframes around SPS 250 amendments are critical and impacts will be noticed for those insurance arrangements ending after 1 January 2023 (for RSE/Insurer connected entities) and after 1 January 2025 for (non-connected entities). 

The time has come, and APRA is expecting RSEs to get their “insurance house in order”. IQ Group are already working with clients to implement these amendments and ensure they meet their obligations within the very short timeframes.

We’re here to help!

By Tenaiha Fletcher
HIQ Academy Consultant