Over the second and third quarters of this year, the Australian Prudential Regulation Authority (APRA) plans to re-engage with superannuation trustees and life insurers on the issues it raised on group life insurance in super in a letter to them in March last year.

The letter detailed “concerning developments” APRA had picked up relating to premium volatility, availability and tender practices.

APRA said these trends appeared similar to those seen between 2012 and 2016 when insurers experienced significant losses after a period of significant premium reductions and benefit increases.

As a result, insurers hiked up premiums and introduced more restrictive cover terms. Some trustees even had trouble obtaining quotes for cover.

Also set to come up in APRA’s discussions with the industry are trustee insurance strategies (including the impact of recent reforms such as member stapling), the availability and quality of trustee data and compliance with its superannuation prudential standard, SPS 250 Insurance.

The latter now includes updated requirements for trustees when choosing, managing and monitoring members’ insurance arrangements which come into effect from 1 July 2022.

An APRA spokesperson tells Investment Magazine that the regulator has continued to monitor insurance trends in super since its March 2021 letter. “We have observed a range of changes in premiums as trustees and insurers review insurance offerings. Recent tender outcomes are presenting varied and differing results across insurance products – death, total and permanent disability (TPD) and income protection (IP) – and some member age cohorts.”

Various funds have recently adjusted their premiums rates, but for different reasons.

In May, for example, AustralianSuper cut the cost of its insurance cover by 11 per cent on average.

“This is because over the past year, we had fewer claims for death, TPD and IP with a benefit payment period up to two years, so we’ve been able to decrease the cost of these cover types,” said Richard Land, head of insurance at AustralianSuper.

Another reason was the low unemployment rate. “Historically, there has been a statistical correlation between high unemployment and high disability claims, and vice versa. The strong recent employment figures have had a favourable impact on insurance premiums,” Land said.

However, the number of claims for IP with a benefit payment period up to five years or up to age 65 has increased. This means for the cost of this cover went up for 17,000 AustralianSuper members.

Colonial First State (CFS) also reduced premium rates in FirstChoice Employer Super, FirstChoice Personal Super, FirstChoice Wholesale Personal Super and Commonwealth Essential Super members in February 2022. For example, death, and death and TPD, in FirstChoice Personal Super and FirstChoice Wholesale Personal Super came down by 23 per cent.

According to CFS, after it reappointed AIA as its insurance provider following a thorough insurance review and tender process in 2021, it was able to negotiate premium reductions and improvements to its offerings.

Most of Rest Super’s insured members also received a reduction in their premiums when its default cover was introduced in April 2020.  Premiums for default death, TPD and IP cover were reduced by an average of 36 per cent. According to Rest, its scale enabled it to negotiate the reductions.

TAL’s chief commercial officer, group life and investments, Andrew Howard, said premium pricing for each fund depends on its claims data at any given time and what cover is important to its members.

“We study the claims trends for each fund and depending on the current types of illnesses, injuries or, even worse, deaths experienced, we can tell whether the risks are increasing or decreasing,” he said.

But Howard said some changes in legislation have influenced premium rates.  This included Protecting Your Super (PYS) which, from July 2019, required insurance to be “opt-in” for inactive members.

Then Putting Members’ Interests First (PMIF), which took effect in April 2020, put an end to new default insurance being offered to members with account balances below $6,000 or aged under 25.

Howard explained that these changes reduced the number of members with insurance. “That meant that some of the funds had more risk and the pricing needed to reflect that. That increased the pressure on premiums and pricing went up.”

It’s possible that this has worked its way through the system and has led to a drop in rates, he said.

Meanwhile, MLC Life’s research reveals that another legislative change – stapled super funds which started in November 2021 – could affect insurance in super.

MLC Life found that only 42 per cent ever of fund members review their cover and that 60 per cent are unaware of stapling, potentially leaving them with inadequate or no cover when they change jobs.

“The average Australian changes jobs 12 times throughout their lifetime,” said Mark Puli, chief group insurance officer at MLC Life.

“In that time, they may get married, have kids, buy a home, and take on more debt. It’s imperative that members have the right cover for their needs and if they aren’t prompted to review it, they simply won’t.”

PYS and PMIF, however, may be changing the picture.

Following their introduction, Howard says funds have been communicating more with members about insurance and members have become more engaged.

“So, if there was a claim that they needed to make, and they hadn’t thought about it, they are now coming forward with those claims,” he said.

Cbus has also experienced this heightened member engagement with insurance. “Claims are being lodged sooner than they were a few years ago,” said Noel Lacey, Cbus head of insurance pricing and relationships.

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