The Australian Prudential Regulation Authority (APRA) has been told it is unreasonable to demand of group insurers that they provide information on the potential for changes to premium rates and other terms and conditions beyond their initial guarantee periods.
The Association of Superannuation Funds of Australia (ASFA) has made the point in a submission to APRA on a consultation paper around group insurance arrangements and noted the regulator’s expectation that an “insurer’s response to a tender [should] discuss the potential for future changes to the premium rates and the other terms and conditions”.
The APRA discussion paper said this was particularly important “if there is a significant likelihood that future changes will have a materially adverse impact on beneficiaries”.
However the ASFA submission said the discussion paper left it unclear how far into the future APRA expected such discussions of future changes to encompass.
“ASFA considers that any suggestion that an insurer’s response to a tender should discuss the sustainability of the premium rates and policy terms beyond the guarantee period is unreasonable,” it said.
The submission said that with the exception of the premium rates, the policy terms were usually guaranteed for the term of the policy.
“Given the volatility of the business, insurers reserve the right to re-price the risk and cannot readily predict risks that may arise in the future. Any forecast by the insurer in this regard would potentially expose it to claims for negligence or misleading and deceptive conduct if the forecasts turn out to be inaccurate or incomplete,” it said.
“Additionally, such a disclosure could limit or negate the insurer’s right to re-rate the risk under the terms of the policy, which could potentially have an impact on reinsurance arrangements,” the ASFA submission said.
It noted that if the insurer was unable to re-price (where doing so would go against forecasts previously provided to policy owners) “this potentially could leave the insurer in a precarious position of not being able to pass on to policy owners rate increases imposed on it by the reinsurer”.
“Also if, as is often the case, the premiums payable under the reinsurance treaty are tied to the premiums the insurer charges its policy owners, a fetter on the insurer’s ability to re-price may adversely affect the profitability of the reinsurer under the treaty and accordingly its pricing,” the ASFA submission said.
