Insurance in Superannuation

I recently worked on a project where we reviewed the Insurance Management Framework (IMF) for a Superannuation Fund. For this triennial review, we assessed the effectiveness, appropriateness and adequacy of this framework by ensuring that it met the requirements of the relevant APRA standard – SPS 250 Insurance in Superannuation. We also, provided further feedback on how the fund can improve its practices concerning Insurance Management.

APRA released an updated version of SPS 250 and its accompanying prudential guide – SPG 250, in November 2021. The standard is effective from 1 July 2022. Three key changes are:

  • The need for independent certification for when insurance arrangements are entered with a connected entity.
  • The requirement for a process for beneficiaries to be able to opt-out of insurance cover easily and for this process to be communicated to beneficiaries.
  • Rules for attributing any status to beneficiaries in connection with the provision of insurance are to be fair and reasonable (e.g. occupation category).

In addition to meeting the SPS 250 requirements, a Superannuation Fund may improve its insurance management by incorporating the following practices and principles:

  • Ensuring your IMF remains appropriate for the Trustee and the risks it faces and provides for appropriate procedures to ensure that the framework addresses any new risks or changes to existing risks, including learnings from actual or potential risk incidences.
  • Designing your insurance philosophy, strategy and benefit design so that they are highly member-centric.
  • Clearly defining appropriate roles and responsibilities, lines of reporting for the oversight of the IMF, and any risk control and management committees.
  • An appropriate review process to ensure the IMF remains relevant, compliant and effective.
  • Condensing the insurance management policy documents so that the board and other key stakeholders can easily and quickly understand and focus on what is most important to them.

Current insurance issues that are at the front of superannuation trustee’s minds are:

  • The short and long impact of COVID-19 on mental health and its flow through to claims and premiums.
  • Continuing poor industry profitability for TPD within group lump sum insurance products.
  • Ensuring members who by default don’t have insurance but would benefit from insurance are identified and communicated with fairly.

For an insurance management framework to remain current and effective, a Fund’s IMF needs to facilitate addressing such issues.

The best way to do this is to ensure that the regular review process explicitly considers:

  • Potential opportunities to improve insurance.
  • Emerging issues and risks.
  • The effect of these risks and opportunities on members’ best financial interests and the Fund.

Insurance is a material and complex area of superannuation and needs to be properly managed and factored into decision-making. By having an appropriate insurance management framework, which is well understood across the entity, a Superannuation Fund will be able to make the best decisions for its members and the Fund’s long term financial health.