TAL’s Renee Voutt writes that trustees must ensure they are ready to implement the Insurance Management Framework – no ifs, buts or maybes.
Struggling or not, the obligation for trustees to have in place an Insurance Management Framework (IMF) as part of the new prudential regulatory regime for superannuation cannot be avoided. The following are some pointers to ensure the obligations under SPS 250 Insurance in Superannuation are well in hand.
Trustees of most large superannuation funds will be required to have in place processes, procedures and systems, to meet their new insurance management framework responsibilities for 1 July 2013. This is only the start of the journey.
The regulatory burden on superannuation trustees has been heavy. The regulators themselves acknowledge this, but part of the reason for the new obligations is to ensure that trustees take greater care and responsibility around the insurance aspects of their offerings.
The Australian Prudential Regulation Authority’s (APRA) SPS 250 Prudential Standard Insurance in Superannuation (SPS 250) contains many new obligations.
The development of an insurance management framework is a central element to ensure that trustee boards properly plan, manage, review and account for their insurance arrangements.
Whether participating in MySuper or not, there is a requirement on all RSE (Registrable Superannuation Entity) licensees to meet SPS 250. At a minimum, an RSE licensee will be required to:
- Develop and implement an insurance management framework;
- Develop and implement a board-approved insurance strategy;
- Maintain sufficient data records;
- Undertake appropriate selection processes for insurers, due diligence of selected insurers and ongoing monitoring of these insurers; and
- Have insurance policies and procedures that adequately address the minimum requirements set out in the prudential standard.
An insurance strategy is a key feature of the insurance management framework, and is required by s 52(7) of the SIS Act.
The insurance strategy must address a number of factors including the kinds of benefits to be offered, the costs and levels of those benefits, and the basis on which the insurance design is chosen, having regard to the demographics of the fund’s membership and the method for choosing an insurer.
In addition to the requirements in section 52 (7) of the SIS act, SPS 250 provides that the insurance strategy should consider:
- The process for monitoring, reviewing and renewing insurance arrangements made available to beneficiaries;
- A policy covering claims management, regardless of who is responsible for handling claims; and
- The trustee’s approach as outlined in the ‘conflicts management framework’ in relation to conflicts that may arise through making available insured benefits to beneficiaries.
As per the investment management strategy, RSE licensees will now have to monitor the insurance arrangements continually and ensure that any decisions or changes made are in line with the insurance strategy, and are in the collective best interest of members.
This will strengthen the partnership arrangement of an RSE with their insurance provider; ensuring there is adequate reporting of service in place, quality documentation of policy terms and conditions and maintenance of a competitive product offering.
Data management and reporting
SPS 250 requires an RSE licensee to keep claims experience and other insurance records for a minimum of five years for each RSE within its business operations.
This will in turn support the tender process because accurate claims records support the identification, monitoring and management of the risks associated with making insured benefits available to beneficiaries.
APRA also considers it good practice to hold and maintain the history of your fund’s previous insured benefit designs, as they may evolve over time.
Where information is held by the insurer or administrator, APRA expects trustees would receive data reports periodically or have access to relevant insurance information.
If they have not already done so, funds should enter into a Service Level Agreement with their insurer that addresses the requirements within SPS 250 and the annual reporting obligations for its clients.
This service standard also contains a sample quarterly and annual report template that can be included within the IMF.
From an insurance standpoint there are some potential impacts to consider when it comes to the reporting and release of data.
APRA and industry participants are hoping that the new standard will result in:
- The provision of improved tender data, with consistent data and requirements available to all insurers for mandates;
- More robust reporting requirements with trustees holding ultimate responsibility for data; and
- Greater controls where more than one insurer is used by an RSE licensee.
APRA has signalled that it is intending to hold trustees responsible for the delivery of accurate and complete data.
Trustees will need to work with their insurers to understand what control mechanisms are in place, and understand the level of accuracy that exists both today and historically.
They need to consider whether any controls are absent and address any gaps.
As trustees continue to develop their insurance management frameworks, best practice models will begin to emerge and the shared responsibilities between RSE licensees and insurers will become clearer within a more robust structure for insurance within superannuation.
Ultimately, this new regime should lead to enhancing the ability of members to obtain and preserve their insurance benefits and further help address the nation’s huge under-insurance issue.
(While the information in this article is believed to be accurate, it is not legal advice nor is it be taken as legal advice. Trustees should seek their own legal advice in relation to the matters discussed in this article).
Renee Voutt is product solutions manager, Group Life, at TAL.
