Prudential Standard SPS 250
Insurance in Superannuation
Authority
1. This Prudential Standard is made under section 34C of the Superannuation Industry (Supervision) Act 1993 (SIS Act).
Application and commencement
2. This Prudential Standard applies to all registrable superannuation entity (RSE) licensees (RSE licensees).
3. Where an RSE licensee of a defined benefit fund is permitted to self-insure benefits, paragraphs 23 to 29 inclusive do not apply with respect to the self-insured benefits.
4. This Prudential Standard commences on 1 July 2022 (effective date).
Interpretation
5. For the purposes of this Prudential Standard, ‘insured benefits’ means benefits that are made available to beneficiaries via:
(a) insurance acquired by an RSE licensee from a life company registered, or taken to be registered, under section 21 of the Life Insurance Act 1995 or a general insurance company or Lloyd’s underwriter authorised, or taken to be authorised, under the Insurance Act 1973 (an insurer); or
(b) insurance offered under an RSE licensee’s self-insurance arrangements.
For the purposes of this Prudential Standard, the activities described in paragraphs 5(a) and (b) are referred to as ‘making insured benefits available’ to beneficiaries.
6. Where this Prudential Standard provides for APRA to exercise a power or discretion, the power or discretion is to be exercised in writing.
Adjustments and exclusions
7. APRA may adjust or exclude a specific requirement in this Prudential Standard in relation to:
(a) a particular RSE licensee of an RSE;
(b) a particular connected entity of an RSE licensee of an RSE;
(c) specified RSE licensees of RSEs; or
(d) specified connected entities of RSE licensees of RSEs.
RSE licensees that are part of a group[4]
8. Where an RSE licensee is part of a corporate group, and the RSE licensee utilises group policies or functions, the Board must approve the use of group policies and functions and must ensure that these policies and functions give appropriate regard to the RSE licensee’s business operations and its specific requirements.
Insurance management framework
9. An RSE licensee must have in place an insurance management framework to manage making insured benefits available to beneficiaries.
10. An RSE licensee’s insurance management framework is the totality of systems, structures, policies, processes and people to manage making insured benefits available to beneficiaries.
11. An RSE licensee’s insurance management framework must be appropriate to the size, business mix and complexity of the RSE licensee’s business operations and to the types of insured benefits made available.
12. The Board is ultimately responsible for the insurance management framework.
13. An RSE licensee’s insurance management framework must, at a minimum, include:
(a) the insurance strategy required under section 52(7) of the SIS Act (which must also comply with the requirements of this Prudential Standard);
(b) policies and procedures of the RSE licensee relevant to making insured benefits available to beneficiaries, that cover but are not limited to:
(i) the process by which the cost to the RSE licensee of insurance premiums is recovered from the RSE(s);
(ii) the process for monitoring and reviewing the administration of insurance;
(iii) underwriting; and
(iv) claims assessment;
(c) clearly defined roles and responsibilities and lines of reporting for the oversight of the insurance management framework;
(d) a review process to ensure the insurance management framework remains appropriate and effective;
(e) a policy for managing declined applications for insurance, applications resulting in reduced cover or restrictions, terminations of cover and requests for reinstatement; and
(f) a process that enables beneficiaries to easily opt out of insurance cover, and that sets out how this will be communicated to beneficiaries.
14. An RSE licensee must have procedures to ensure that all persons in roles relevant to the insurance activities of the RSE licensee are made aware of, and have processes and controls for monitoring compliance with, the RSE licensee’s insurance management framework.
15. An RSE licensee must maintain or have access to records of sufficient detail to comply with its obligations under the reporting framework and for a prospective insurer to properly assess the insured benefits that are made available. These records must include, for at least the previous five years, the claims experience, membership, sum insured and premiums paid in relation to beneficiaries.
16. An RSE licensee’s risk management framework must reflect the risks associated with making insured benefits available to beneficiaries as a material risk area identified in Prudential Standard SPS 220 Risk Management.
Insurance strategy
17. In addition to complying with section 52(7) of the SIS Act, an RSE licensee’s insurance strategy for an RSE must, at a minimum, document:
(a) how the RSE licensee has regard to each of the factors in section 52(7) of the SIS Act;
(b) the processes for monitoring, reviewing and renewing the insured benefits made available to beneficiaries;
(c) the RSE licensee’s approach to claims management, regardless of who is responsible for handling claims; and
(d) the RSE licensee’s approach, as outlined in its conflicts management framework, to conflicts that may arise through making available insured benefits to beneficiaries.
Insurance arrangements
18. For the purposes of this Prudential Standard, ‘insurance arrangement’ means:
(a) where an RSE licensee makes available insured benefits as described in paragraph 5(a) – an insurance policy document; or
(b) where an RSE licensee makes available insured benefits as described in paragraph 5(b) – appropriate documentation of the terms and conditions of the insured benefits;
and any agreement between the RSE licensee and the insurer or any other party, to the extent that the agreement concerns making available insured benefits.
19. At a minimum, the insurance arrangement must address:
(a) the level and type of insured benefits made available, including any exclusions;
(b) the term of the insured benefits;
(c) automatic acceptance limits (to the extent relevant);
(d) availability of opt in and/or opt out cover;
(e) requirements for the beneficiaries’ eligibility for, cessation of, and any reinstatement of entitlements to insured benefits where available;
(f) premium structure, including any variable components;
(g) procedures for notification and payment of claims;
(h) dispute resolution arrangements;
(i) agreed service standards;
(j) reporting requirements for monitoring agreed service standards;
(k) the provision of complete claims information to the RSE licensee on an annual basis which, at a minimum, includes the information required to be maintained by the RSE licensee under paragraph 15;
(l) liability and indemnity arrangements;
(m) review and renewal provisions for the insurance arrangement; and
(n) termination provisions for the insurance arrangement which, where relevant, include a right for the RSE licensee to terminate the insurance arrangement, or the relevant part of the insurance arrangement, if the RSE licensee is not satisfied that the arrangement is in the best financial interests of the beneficiaries.
20. An RSE licensee must be able to satisfy itself, and demonstrate to APRA, that the rules for attributing any status to a beneficiary, (including a class or cohort of beneficiaries) in connection with the provision of insurance, are fair and reasonable.
21. An RSE licensee must notify APRA as soon as practicable of any issues that it considers might materially affect its ability to make insured benefits available to beneficiaries.
22. Where an insurance arrangement is terminated, an RSE licensee must notify APRA as soon as practicable and provide a statement about the transition arrangements and future strategies for continuing to make insured benefits available to beneficiaries.
Selection and monitoring of insurers
23. An RSE licensee must:
(a) develop and implement a selection process for choosing an insurer that includes, at a minimum, consideration of the prospective insurer’s terms of cover and exclusions, claims philosophy, the reasonableness of the premiums to be charged and terms of any delegation to any other person of functions associated with making available insured benefits;
(b) undertake a due diligence review of the selected insurer; and
(c) be able to demonstrate to APRA the appropriateness of the selection process and due diligence review and how it is applied.
24. An RSE licensee must be able to satisfy itself, and demonstrate to APRA, that the engagement of an insurer is conducted at arm’s length and is in the best financial interests of beneficiaries.
25. Where an insurer that is a connected entity of an RSE licensee is party, or will be party, to an insurance arrangement with the RSE licensee under which the RSE licensee makes, or will make, insured benefits available to beneficiaries, the RSE licensee must obtain an independent certification that states it is reasonable for the RSE licensee to form the view that the insurance arrangement is in the best financial interests of the beneficiaries.
26. Subject to paragraph 33, an RSE licensee that is required to obtain an independent certification under paragraph 25 must obtain the certification:
(a) before the RSE licensee:
(i) enters into a new insurance arrangement; or
(ii) renews, or materially alters the terms of, an existing insurance arrangement; and
(b) on at least a triennial basis.
27. An RSE licensee must provide APRA with the independent certification required under paragraph 25 no later than 10 business days after the RSE licensee receives the certification.
28. APRA may require an RSE licensee, by notice in writing, to seek an independent certification of an insurance arrangement under which the RSE licensee makes, or will make, insured benefits available to beneficiaries, that states it is reasonable for the RSE licensee to form the view that the insurance arrangement is in the best financial interests of the beneficiaries. An RSE licensee that receives such a notice from APRA is required to comply with the terms of the notice in writing.
29. An RSE licensee must ensure it has sufficient and appropriate resources to manage and monitor its relationship with an insurer at all times. At a minimum, the monitoring must include:
(a) maintaining regular contact with the insurer at an appropriate frequency and level of seniority; and
(b) a process for regular monitoring of performance under the insurance arrangement, including reporting to senior management against service levels.
Review of insurance management framework
30. An RSE licensee must ensure that the appropriateness, effectiveness and adequacy of its insurance management framework are subject to a comprehensive review by operationally independent, appropriately trained and competent persons at least every three years.
31. The scope of the comprehensive review of an RSE licensee’s insurance management framework must have regard to the size, business mix and complexity of the RSE licensee's business operations, the extent of any change to those operations and any changes to the external environment in which the RSE licensee operates.
32. At a minimum, the comprehensive review of the insurance management framework must consider:
(a) all the matters identified in paragraph 13;
(b) whether there are any conflicts of interest or duty that may affect the arm’s length nature of the insurance arrangement; and
(c) whether the best financial interests of the beneficiaries may not have been prioritised, after considering:
(i) the RSE licensee’s business practices in selecting and monitoring an insurer; and
(ii) the terms and conditions of the insurance arrangement(s) for making insured benefits available for the beneficiaries.
Transitional arrangements
33. Where:
(a) an RSE licensee has entered into an insurance arrangement with a connected entity of the RSE licensee prior to the effective date; and
(b) the insurance arrangement ends on or after 1 July 2023,
the RSE licensee must, before 1 July 2023, seek an independent certification that states it is reasonable for the RSE licensee to form the view that the insurance arrangement is in the best financial interests of the beneficiaries.
34. An RSE licensee must provide APRA with an independent certification obtained for the purposes of paragraph 33 no later than 10 business days after the RSE licensee receives the certification.
35. Where an RSE licensee is unable to obtain an independent certification, for the purposes of paragraph 33, that states it is reasonable for the RSE licensee to form the view that the insurance arrangement is in the best financial interests of the beneficiaries, the RSE licensee must notify APRA no later than 10 business days after becoming aware that it cannot obtain an independent certification containing that statement.