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Independent Certification for insurance in super

Wednesday 22 September 2021

 
This week Australia’s prudential regulator has indicated that intend to go ahead with the independent certification requirement for related party arrangements when it comes to insurance in superannuation.

However, in letter to the superannuation industry, the Australian Prudential Regulatory Authority (APRA) they indicated that the requirement would be removed for priority and privileged insurance arrangements because this might have ‘unintended consequences’. 

“Industry feedback has indicated that the majority of insurance arrangements across the industry could fall within the definition of priority and privilege arrangements. Therefore, it is important that RSE licensees ensure that the risks that arise from such contracts are appropriately identified and managed.”

In a letter to the superannuation industry the Australian Prudential Regulatory Authority (APRA) said, “These revisions to the superannuation prudential framework are an important step in ensuring RSE licensees meet their obligations to prudently select, monitor and manage insurers. The amendments are consistent with the sharper focus of the new best financial interest’s duty, and the reverse evidential burden of proof, recently implemented as part of the Government’s Your Future, Your Super reforms. APRA RSE licensees must maintain sound insurance management frameworks, and robust decision-making in the negotiation and ongoing review of insurance arrangements.”
 
Other Amendments
The letter highlighted two other amendments that will be included as provisions in the SPS 250:

  • Expanded scope of the insurance management framework in SPS 250: APRA intends to require that RSE licensees’ insurance management frameworks (IMF) include consideration of any contractual terms and business practices that may indicate conflicts and/or 'priority and privilege'. Further, the comprehensive review of the IMF (undertaken every 3 years by an operationally independent person) will be required to assess whether there are any such provisions or practices with respect to insurance arrangements, and to assess the appropriateness of these provisions and practices, and whether they are in the best financial interests of beneficiaries; and
  • Express consideration of priority and privilege provisions in delivering member financial outcomes in SPS 515: APRA intends to require RSE licensees to consider whether any ‘priority and privilege’ provisions in insurance arrangements are affecting the insurance outcomes for members (as reflected in the Business Performance Review (BPR) and annual outcomes assessment in Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515).