Federal government attempts to improve the governance of insurance offered through superannuation funds are set to increase the costs to fund members.
CommInsure head of industry fund segment Frank Crapis said the costs of implementing the Insurance Management Framework (IMF) were “a question for the industry”, but would, most likely, be borne by administrators and fund trustees.
The draft IMF was published in April by the Australian Prudential Regulation Authority (APRA), and superannuation trustees must have their IMF in place by 1 July next year to comply with Prudential Standard SPS250 Insurance in Superannuation and section 52(7) of the Superannuation Industry (Supervision) Act 1993.
The APRA standard would apply to all registrable superannuation entities and applied to death benefits, permanent or temporary incapacity, and terminal medical conditions.
Crapis told CommInsure’s thought leadership event that super fund boards were “ultimately responsible” for having the frameworks in place and working, and also must be able to demonstrate the products’ designs showed that those boards “understand the membership and the affordability of the products”.
He said corporate super funds’ boards needed to pay particular attention to “the level of insurance for contractors, casuals and overseas workers”.
In a comment from the floor, Club Plus Superannuation head of audit risk and compliance Phil Grindley said “while greater governance in itself is a good objective”, the irony was that Stronger Super’s aim of a “quality product at a lower cost” might not be achieved.
“We’re waiting to see where the next savings will be found. While we agree with greater governance and oversight, we’re already seeing (Treasurer) Wayne Swan saying that the super funds levy will be paying for SuperStream – and that’s concerning. It’s directly [affecting] what the members pay,” Grindley said.
“We accept the need for change, but perhaps this could have been staged better – prudential standards first, then auto-consolidation of amounts up to $1000, and then SuperStream and MySuper.”
Data ownership was also flagged by Crapis as “an issue which needs to be resolved directly” because of confusion and potential legal issues.
Sequential Project Services principal of professional services and product Glenn Elliott later told InvestorDaily that “trustees are not ready, not even nearly ready” for the legal responsibilities that flowed from the incoming prudential standard.
“This level of granularity of information is not understood by trustees, particularly those which have, in the past, outsourced to administrators and group insurers,” Elliott said.
“Trustees are now on the hook for data retention for five years and for that they’ll want reports plus access to the raw data.”
The precedent for this was in the cloud space, with big providers having very mature data banks, “so in theory, the standard will bring everyone up to the minimum standard” for data, he said.
On the question of costs, he said he regarded this being passed onto group insurers, which might have to absorb some costs “due to competitive pressure”, with the rest being passed to the funds’ members.
