Insurance companies seeking to provide group insurance to superannuation funds should make open and clear about their claims philosophy, according to the Australian Prudential Regulation Authority (APRA).
The regulator has made this position clear in a updated Prudential Practice Guide released today in which it also suggests that insurers should not pursue group insurance tenders if they cannot handle the workload and time-frame demands involved.
"APRA considers it good practice for the insurer to consider withdrawing from a tender if the time allowed for a response is insufficient for the insurer to properly consider and price the risks," the APRA practice guide said.
It said that, alternatively, a quotation could be made on an indicative basis with the cost of insurance and other terms and conditions subject to confirmation at a later date. On the question of claims philosophy, APRA said it believed it was "good practice for an insurer to make it clear in its response to a tender that its claims philosophy captures the insurer's current approach to claims assessment, administration and settlement".
"…the degree of reliance placed on prior claims experience may be affected where those claims were assessed under a materially different claims philosophy or where knowledge of the claims philosophy is limited," it said.
"For example, the claims philosophy of a tendering insurer may be different to the claims philosophy of a previous insurer of the group scheme. In such circumstances, the increased uncertainty around the degree of reliance that can be placed on prior claims experience would be expected to be considered by a tendering insurer in its pricing assumptions and reserving."
