APRA has floated proposed revisions to prudential standards covering insurance in super, including requiring independent verification of insurance arrangements to ensure they are in the best interests of members.
The prudential regulator has released a consultation paper on its proposed changes to Prudential Standard SPS 250 Insurance in Superannuation (SPS 250), responding directly to two of the recommendations of Royal Commissioner Kenneth Hayne.
The proposals were outlined in a letter to industry stakeholders today, and include requiring super funds to independently certify that insurance arrangements are in the best interests of beneficiaries - implementing recommendation 4.14.
"APRA should amend Prudential Standard SPS 250 to require RSE licensees that engage a related party to provide group life insurance, or who enter into a contract, arrangement or understanding with a life insurer by which the insurer is given a priority or privilege in connection with the provision of life insurance, to obtain and provide to APRA within a fixed time, independent certification that the arrangements and policies entered into are in the best interests of members and otherwise satisfy legal and regulatory requirements," the letter reads.
The certification would need to provided to APRA within five business days of its receipt, and no later than a month after entering the arrangement.
In cases where the insurance arrangement is for a term of three years or more, APRA will require the certification once every two years.
Super funds would also be required to ensure that any status attributed to a beneficiary in connection with the provision of insurance is fair and reasonable, implementing recommendation 4.15.
"These proposed amendments seek to strengthen the processes undertaken by RSE licensees in engaging related parties to provide insurance arrangements, with a view to ensuring appropriate consideration of the outcomes provided for members under those arrangements," the letter states.
"They also address concerns highlighted by cases considered by the Royal Commission where members were adversely impacted by being inappropriately attributed with a particular employment status under insurance arrangements."
APRA's proposal also includes requiring a process which enables beneficiaries to easily opt-out of insurance cover, and that the level of insurance cover not inappropriately erode the retirement income of beneficiaries.
The regulator said it would "particularly welcome" feedback on aspects of insurance arrangements that may give "priority or privilege" to an insurer, and other areas related to this proposed requirement where guidance in SPG 250 would be helpful.
Consultation closes on February 3, with the regulator set to finalise the prudential standard by mid-2020 to come into effect from 1 January 2021.