APRA plays down insurance bonus implications

The Australian Prudential Regulation Authority (APRA) has played down suggestions that bonuses paid to superannuation funds by life insurance companies represent an incentive to reduce claims.

Appearing before the House of Representatives Economics Committee, APRA member, Helen Rowell referred to "risk sharing" arrangements around the performance of individual schemes and said the regulator did not have an issue with those arrangements.

She said the committee needed to think about the different segments of the industr, lifey and the way in which the products were promoted and sold and the distinction between individual superannuation clients who might be choosing to have insurance that might be being provided through a provider versus more group arrangements where the insurance is organised through the employer.

Asked whether there were dangers of a conflict of interest where a superannuation was effectively marketing life insurance products and then getting a financial incentive based on the rate of claims against those products, Rowell said APRA would not characterise such arrangements as a commission or an incentive to reduce claims.

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"What... is described is an arrangement where, in effect, it is an experience adjustment rather than a commission, and its aim is to smooth the premiums for members and the outcome for the fund over time," she said.

"I think there does need to be constraints around it; it does need to be well managed and well governed."

Rowell said there were usually limits on the degree to which the premiums could be adjusted up or down, and there would also be governance controls and contractual terms and conditions.

"Whenever these arrangements are entered into, it is certainly something that APRA has a keen interest in understanding, particularly in the group insurance space," she said.