Superannuation fund members have been adversely affected by rapid increases in the cost of group risk insurance as insurers moved to shore up losses generated from little or no underwriting according to the Australian Prudential Regulation Authority (APRA).
APRA also claimed group insurers had engaged in making record amounts of default cover available without underwriting and had weakened the underwriting controls for optional levels of cover despite warnings that soft underwriting practices would impact individual company and sector profitability.
APRA made the statements in its annual report, released last week, and stated that despite warnings over the past two years regarding these underwriting practices insurers had not fully dealt with the matter.
"Despite a number of warnings from APRA, group risk insurers have been slow to accept that significant price reductions combined with softer underwriting practices and enhancements to benefits would ultimately affect profitability," APRA stated.
"The immediate response of affected life insurers has been to lift premiums sharply to redress losses. Not only has this led to adverse outcomes for superannuation fund members, it does not address the structural problems that caused the situation."
APRA also stated that group insurers, having to work through more complex Total and Permanent Disability claims, had admitted claims that may not have been covered by policy wording while failing to develop pools of experienced claims staff capable of handling more complex claims.
The report stated the sector was also impacted by higher claims levels as superannuation fund members have become more aware of the cover available to them through their funds and as lawyers have become involved in insurance claims.
As a result of these losses and impacts on members APRA stated that some funds were examining the sustainability and appropriateness of their group life insurance and whether insurance levels were appropriate for members and not eroding retirement benefits.
