Policy definitions still too complex: APRA

The benefit definitions of many group life insurance policies remain too complex, according to the Australian Prudential Regulation Authority (APRA).

The regulator has used its annual report, just tabled in Parliament, to point to the continuing complexity of policy definitions, despite the best efforts of both major insurers and superannuation funds.

However, the annual report acknowledged the level of work carried out by insurers and super funds to overcome the problems which had beset the industry over recent years and which had significantly impacted bottom lines.

"…a series of significant premium increases for many group risk schemes has had the intended effect of restoring short-term profitability," the APRA annual report said.

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"These increases, however, do not address the structural reasons that led to the underlying problems, and have produced an unexpected increase in the cost of insurance for superannuation fund members."

It said that a number of insurers, working with superannuation funds, had also modified their approach to providing additional levels of cover, both by reducing automatic acceptance levels and tightening the application of underwriting requirements for large sums insured.

"Assumptions of future claims incidence and amounts have been revised by most insurers to recognise the experience prevalent in more recent years. In some cases benefit definitions have been modified," it said.

"On the other hand, APRA has observed that benefit definitions remain complex in many policies."

The annual report said that a number of insurers were working with trustees to review benefit definitions, but this might occur over a number of years.

"APRA remains of the view that modernisation of benefit design and definitions is a critical aspect of developing sustainable group risk products, and great stability in pricing and should occur as soon as practicable," it said.