Ross Jones says he often makes the point that the Australian Prudential Regulatory Authority (APRA) has more power over a small credit union than it does over a multibillion-dollar superannuation fund. That is all changing, however, with the passage in the Senate of legislation giving APRA the responsibility to set standards for the super industry, as it does for insurance and banking. Several days after the legislation was passed, Jones, who is APRA’s deputy chairman, addressed an Association of Superannuation Funds of Australia (ASFA) lunch in Sydney. Here are some of his responses at that event.
| Q: APRA originally proposed to restrict insurance offered to fund members to insurance acquired from life insurers. In your speech you announced you had widened that to include general insurers. Why did you change that position? |
A: It was feedback from the industry. A number of submissions argued that this proposal was unnecessarily restrictive and could result in higher insurance costs for some superannuation members. Having considered this feedback and our objectives in originally proposing this restriction, we will change the standard. Registrable superannuation entity (RSE) licensees will not be restricted to only seek income-protection insurance from life insurers. The standard will be adjusted to reflect this position. APRA’s objective in developing the standard is to ensure that trustees understand the risks associated with different insurance providers and to support the proposed legislative restrictions on self-insurance announced by the government. Our initial approach was probably prescriptive then, but I believe it is possible to achieve the appropriate outcome by amending our approach. The standard will require that RSE licensees should look at all aspects of insurance arrangements when selecting an insurer, and not just the level of insurance premiums.
| Q: You seem very focused on insurance and in particular the integrity of data. Why is this a key issue for APRA? |
A: Poor data quality is a major risk. This is a risk for both the insurer and the super fund. APRA supervises both industries and is not taking sides between funds and insurance companies. However, APRA will look after the interests of fund members who are entitled to payment of claims, and both industries need to raise their standards. For the insurer, it is essential that it does appropriate due diligence on data quality provided by a super fund. Mispricing group-life insurance can be very costly for an insurer, particularly as funds have become much larger. Mispricing of risk by an insurer when tendering for the business of a large super fund is a significant issue. There are also risks to the funds. It may be that premiums are raised to cover the risks associated with potentially poor quality-claims data. Alternatively, funds may find that members do not receive the benefits the fund expected them to receive. High quality data will likely lead to better underwriting, more appropriate pricing and better insurance for members.
| Q: Trustees and executives are focusing very closely on the MySuper authorisation process. What are you observing from where you sit? |
A: There are a few concerns at this early stage. Some licensees do not seem yet to have actively engaged in considering what may be required for authorisation or provided the level of resources necessary to drive the substantial change process. A few trustees have given an indication that they will plan to offer a MySuper product, but have not yet considered the important element of developing a risk appetite for offering such a product. Also, there is probably too much focus on the methodology for calculating an operational-risk financial requirement and too little focus on the purpose.
| Q: There are 11 draft prudential standards and they were open to submissions from the industry. What sort of feedback did you get overall? |
A: We received 35 submissions. The feedback was generally positive. I am pleased that the industry is embracing the enhanced supervisory structure for the industry. It was a good process from APRA’s point of view and there was good engagement with the industry. There was also a reasonable industry consensus on what was good and what was not. A consistent view from industry helps the process.
