AustralianSuper is to renegotiate its group insurance on an annual basis, a move leading figures in the sector believe will become the norm for other superannuation funds.

The appetite for writing new group insurance business has shrunk after one of the three big reinsurers, RGA, stopped pricing any new TPD business, while Swiss Re is largely only working with current clients.

This has made insurers wary of signing three year deals unless premiums are enough to cover projected rising payouts.

Paul Schroder, group executive membership at AustralianSuper, hopes one year deals will come without the fear of mispricing that come with three-year deals, where reinsurers, insurer and fund all seek to strike the best possible deal based on forward estimates.

“It is a much better situation to have members pay for the experience they are actually having and not go through this three year process with the risk the contract could be taken away and where people have to take windfall gains or losses.”

Some believe one year deals will broker lower premium rises than for three-year deals.

Thierry Bareau, head of life insurance at Rice Warner, said three year deals had tended to benefit super funds of late and that several reinsurers would now only sign one year deals as a consequence.

Frank Crapis, head of industry funds at Comminsure, said 12 month deals were more likely when there was poor quality data to work on.

“A one year rate guarantee allows the insurer to minimise the risk of losses and reduce the amount of capital that needs to be held,” he said. “The disadvantage of a one year rate guarantee is that expenses cannot be spread across a few years, the insurer/trustee will need to factor in the cost of another re-pricing exercise within 12 months and the insurer is likely to price the volatility into the price.”

A move to annual repricing will incur extra cost for both funds and insurers.

Helen Hewett, executive officer, Industry Funds Forum said tenders took six weeks to complete and that extra time needed to be added to extract the claims data.

“Once prices are in, funds then to go through their own internal approval process and they have to tell all affected members of any price change,” she said. “They would want to advise members of any changes via their six monthly magazine or statement issue mail out to contain costs. As well there are stationery changes, online services and system changes required at the administrator and insurer level.  A big ask and costly exercise if this is an annual function.”

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