Topic Paper 6 - Insurance Arrangements

About this paper   

This paper (Topic Paper 6) provides detail on draft “Reporting Standard (SRS) 251.0 Insurance” (SRS 251.0).

The Superannuation Data Transformation (SDT) project is a key pillar in delivering APRA’s strategic focus on improving member outcomes. APRA’s analysis indicates that there is significant scope for the superannuation industry to improve insurance arrangements provided to members in a number of areas, including benefit design, premiums and claims-handling. Enhanced insurance data will enable Registerable Superannuation Entity (RSE) licensees and APRA to focus in on where change is most needed.

Data collected in draft SRS 251.0 will support the assessment of insurance policies including premiums, claims payments and claims processing stages. Draft SRS 251.0 will capture the connection between superannuation products and insurance policies and patterns of member choice in relation to insurance policies offered within superannuation.  More detailed data in respect of Total and Permanent Disability insurance (TPD) will be collected to assess TPD claims across the industry.

Data collected in draft SRS 251.0 will also support the assessment of insurance-related outcomes for members across different member cohorts and will include: occupation categories, benefits provided and premiums charged at the member level.

Topic Paper 6 provides details of the proposed changes to reporting requirements regarding insurance arrangements including:

• objectives of the proposed changes;
• the current state;
• drivers for change;
• the proposed state; and
• specific areas of the proposals that APRA is requesting feedback on.

The proposals in this paper should be read in conjunction with the Discussion Paper: “Superannuation Data Transformation Phase 1”¹  released on 7 November 2019 and draft reporting standard SRS 251.0. A summary of the key changes proposed to reporting on insurance arrangements is provided in Appendix 1.

APRA recognises the impact that COVID-19 is having on the superannuation industry. However, the proposals outlined in this paper are critical as they will ensure that the gaps in the current data collection are addressed.

Recognising the impact of COVID-19, in addition to undertaking a formal submission process (refer below), APRA will adopt a flexible approach to consultation to help facilitate stakeholder feedback. This will include:

• consolidated feedback through respective industry bodies;
• roundtable discussions and forums;
• webinars; and
• bilateral meetings.

APRA will also undertake a voluntary pilot collection of the data set out in draft SRS 251.0. While the pilot data collection is voluntary, APRA considers the process of working through the data collection is an essential component of the consultation as it will enable RSE licensees to provide comprehensive feedback on proposed changes.

Formal written submissions for Topic Paper 6 close on 30 October 2020.

Footnotes:

¹https://www.apra.gov.au/discussion-paper-superannuation-data-transformation-phase-1 

Chapter 1. Introduction

1.1 Background

Over the last decade, the superannuation industry has grown in size and importance in the Australian economy, with total assets of superannuation entities increasing from $1.1 trillion to $2.7 trillion. The evolution of the superannuation system has been accompanied by continued consolidation of RSE licensees and RSEs, with large and more complex entities managing the retirement benefits of most Australians. In this context it is critical that regulators and other stakeholders have access to data that appropriately reflects the size, nature and complexity of the industry.

Access to data of sufficient breadth and depth is essential to adequately assess all aspects of the superannuation industry’s operations and the progress of RSE licensees in improving outcomes for members. 

To ensure the superannuation reporting framework is fit for purpose the Superannuation Data Transformation (SDT) project will look to improve the breadth of the data collection in Phase 1, with the depth of the data collection to be improved in Phase 2. Phase 3 will refine the quality and consistency of data reported in the first two phases.

1.2 Drivers for change

The key drivers for change through the SDT project are outlined in the November 2019 Discussion Paper. Key objectives include improved accountability of the industry and more informed analysis and assessment of the performance of the superannuation industry by stakeholders.

For Topic Paper 6, the key driver is to collect more granular data than is available under the current reporting framework to enable better understanding and assessment of insurance arrangements, coverage of policies, linkages to superannuation products, member insurance choice, claims processing experience, TPD assessment, and premiums charged.

Improvements to the reporting framework seek to facilitate and support a competitive, transparent, well-governed, resilient and efficient superannuation industry comprised of RSE licensees able to deliver quality outcomes for members for their retirement.

The additional data will also enable APRA to focus supervisory intensity where the insurance arrangements provided by RSE licensees may not be consistent with the reasonable expectations of their members or where improvements in the insurance arrangements are needed.

1.3 Objectives of the proposed changes

APRA is seeking to:

• collect data on all group insurance policies and link these to superannuation products;
• collect data on the choices that members make in relation to their insurance;
• collect information with respect to insurance claims processing;
• clarify the impact of the differences in definitions of total and permanent insurance on member outcomes; and
• collect insurance premiums for all ages, rather than just age 30 and 50 as is currently the case for data collected on SRF 703.0.

Chapter 2. Insurance arrangement information

Through draft SRS 251.0, APRA will enhance the existing insurance data collection to clarify the characteristics of insurance products and expand its coverage to insurance offered across all products. This will facilitate an improved understanding of the nature and value of insurance provided through superannuation and assist RSE licensees in appropriately considering the insurance outcomes for their members when entering into an insurance arrangement.  

The draft reporting standard relates to acquired insurance only, which is currently collected in SRF 250.0. It does not cover self-insurance, for which data is currently collected in SRF 161.0.  The draft reporting standard also expands the collection of insurance premiums charged to members currently collected in SRF 703.0.

The proposals in draft SRS 251.0 provide granular data on the overall insurance arrangements as a step towards a detailed member level data collection.  In Phase 2 of the SDT project, APRA will consider the collection of member level data, which would include individual member insurance arrangements. 

As with existing collections SRF 250.0 and SRF 703.0, it is proposed to collect the data under draft SRS 251.0 on an annual basis as at 30 June or for the year ending 30 June where appropriate. The due date will be aligned with other annual collections.

2.1 Granularity and linkages of data

Existing requirements

Currently RSE licensees report data for each group insurance policy that covers 5% or more of members.  Policies that cover fewer than 5% of members are grouped by insurer and reported in aggregate. RSE licensees are also required to provide information about the number of insured members and aggregate cover, by cover type, for each large group policy, cluster of smaller group policies and cluster of individual policies.

Proposed changes

APRA proposes that all group policies will be reported individually. The data that will be collected:

• will enable the identification of which insurance policies provide cover to members within individual products and subsequent member coverage; and
• will provide information on aspects of member insurance choice, including whether members are retaining the cover they are provided with, or electing to increase, decrease or cease the cover all together.

2.2 Premiums paid to insurers

Existing requirements

Currently information regarding premiums paid to the insurer is split by the method of payment and the period to which it relates.  Rebates received from the insurer are also recorded.

Proposed changes

APRA proposes to require premiums paid to the insurer and rebates received from the insurer to be collected and split by the period and type of cover to which the premium/rebate relates. It is proposed to collect up to 10 years of historical premiums paid.

2.3 Insurance Claims

Existing requirements

Information relating to the number and value of claims paid during the period is currently collected and split by type of insurance, as well as the:

• number of claims reported but not admitted;
• number and value of claims admitted but not yet paid;
• number and value of claims paid that were admitted this year; and
• number and value of claims that were admitted in previous years.

Proposed changes

APRA proposes to require claims data to be collected separately for each group policy or cluster of individual policies.  It is proposed to initially collect up to 10 years of historical claims paid. Claim duration is to be collected for both claims determined during the period and the claims that have been received but not finalised or have been withdrawn by the end of the reporting period (known as undetermined claims).

2.4 TPD definitions

Existing requirements

Information regarding occupation coverage of TPD definitions is currently being collected.  However, many policies have clauses that affect the TPD assessment criteria to be applied at the time of the claim. For example, if a member has been unemployed for a specified period of time prior to the claim being made then they may have to satisfy a more stringent definition than if they remained employed.

Proposed changes

To assist with more accurately assessing the insurance policy coverage and definitions applied for insured members, APRA proposes to collect information on which criteria were applied to members for each TPD claim, i.e. whether members are assessed by:

• own occupation definition;
• any occupation definition; or
• activities of daily living (ADL) definition.

The number and value of claims assessed under each criteria as well as the outcome of the claim is also proposed to be collected.

2.5 Premiums collected

Existing requirements

SRS 703.0 currently requires entities to provide sample premiums for policies providing cover to MySuper members aged 30 and 50.  This includes the worker category to which the premiums apply, however the information on worker category is currently collected via a free text field and hence does not readily enable comparison.

Proposed changes

APRA proposes that premiums for all ages for which cover is provided are required to be reported for all group policies utilised within the RSE. 

APRA also proposes the use of six worker categories to describe the type of occupation covered by the policy.  RSE licensees would select the occupation category that best aligns with the insurance policy.

Chapter 3. Overlap with current reporting standards

Due to the large overlap between SRS 250.0 and the reporting standards proposed as part of this consultation, collections under current SRF 250.0 will be discontinued once the new reporting standards come into effect.

Similarly, Item 6 on SRF 703.0 covering Insurance premiums disclosed will also be discontinued due to the overlap with data to be collected under draft SRS 251.0.

Chapter 4. Proposed non-confidentiality determination

APRA’s SDT project will lead to significant changes to reporting requirements.  As a result of these changes, APRA needs to consider whether the data reported under Financial Sector (Collection of Data) Act 2001 (FSCODA) should be determined to be non-confidential and publicly accessible.

APRA is generally able to publish aggregate industry-level data without restriction. To achieve the objectives of the enhanced superannuation data collection, which include improved accountability of the industry and more informed analysis and assessment of the performance of the superannuation industry by stakeholders, it will be necessary to publish data at an individual entity, product and investment option level.

Under section 56 of the Australian Prudential Regulation Authority Act 1998 (APRA Act), data reported to APRA under FSCODA is protected information and generally not able to be disclosed at an entity level, unless APRA determines the data to be non-confidential.

However, section 57 of the APRA Act permits APRA to make a determination that data provided in a particular reporting document, which has been submitted in accordance with a reporting standard made under FSCODA, is non-confidential if it considers the benefit to the public from the disclosure outweighs any detriment to commercial interests that the disclosure may cause. 

FSCODA also requires that APRA must not make such a determination unless it has:

• given interested parties (bodies or associations representing the relevant kind of financial sector entity) a reasonable opportunity to make representations as to whether information of the kind that is proposed to be released is confidential; and
• taken any such representations into account.

APRA proposes to determine under section 57 of the APRA Act that all data under SRS 251.0 is non-confidential.

Data which APRA determines to be non-confidential can, when published, identify individual entities but will not breach the privacy of individual members.  The scope of the proposed publication of data and treatment of privacy protection in public data releases will be set out in the Phase 1 Consultation Response.

Reasons for the proposed determination

The data to be collected under draft SRS 251.0 will provide essential information to fulfil the objectives of the SDT.  Publicly releasing this data at an entity level will provide necessary information on insurance arrangements to allow APRA, other regulators and industry stakeholders to understand and assess superannuation insurance arrangements.

APRA intends to release initial proposals with regards to publication and sharing of data for the proposed data collection later in 2020.

4.1 Feedback sought on confidentiality proposals

As required under subsection 57(3) of the APRA Act, APRA seeks submissions from RSE licensees and other interested parties on whether data collected under draft SRS 251.0 should remain confidential. The submissions should include:

• details of the data items that should remain confidential (if any);
• information on how the disclosure of that information would lead to detriment to member interests, and the extent to which that could occur; and/or
• information on how the disclosure of that information might lead to detriment to RSE licensees or other parties’ commercial interests.

Chapter 5. Consultation questions: Insurance Arrangements

Comment is invited on the proposed reporting changes outlined in this paper, and the draft reporting standard, specifically in the below areas:

Questions

1. Are there any issues with extending the data collection to all group policies and not to aggregate group policies as is currently done in SRS 250.0? If so, can you outline the issues and how they may be addressed?
   
    
2. Are there any data items requested that you believe are inappropriate or should not be considered? If so, can you provide a rationale for why they should not be captured and provide alternatives that could be used to provide similar insights?
   
    
3. Are there any other insurance metrics not included in the draft reporting forms that should be considered? If so, please outline and provide an explanation as to why they should be included.
   
    
4. Does your entity offer insurance cover through superannuation that is not life, TPD, IP or a combination thereof? If so, can you provide details of this insurance cover in your submission?
   
    
5. What difficulties, if any, would there be from splitting bundle premiums if this was required and how could they be addressed?
   
    
6. What options for reporting IP insurance claims in progress would be preferable for funds to provide increased data on the payments being made to members?
   
    
7. Does your entity have any worker categories that cannot be attributed to one or more of the standard categories and how could these worker categories be categorised?
   
    
8. Feedback as outlined in item 3.1 Feedback sought on confidentiality proposals. Please ensure feedback is specific on which data items should remain confidential and any detriment to member or commercial interests

5.1 Submission of responses

Written submissions on this Topic Paper should be sent by 30 October 2020, preferably by email to superdatatransformation@apra.gov.au. Alternatively, submissions can be mailed to:

General Manager  

Data Analytics & Insights

Cross-Industry Insights and Data Division  

Australian Prudential Regulation Authority

GPO Box 9836 

SYDNEY NSW 2001

5.2 Submission of pilot data

Through Phase 1 of the SDT project, APRA is seeking to collect pilot data on a voluntary basis to test and inform areas for clarification prior to finalising Phase 1 reporting standards.  As the pilot data is based on draft reporting standards, this data is not collected under the auspices of FSCODA and will be submitted on a best endeavours’ basis.  

While provision of the pilot data is not mandatory for entities, past experience has indicated that it is difficult for the industry to provide comprehensive feedback on proposed data collections without actually working through the provision of data. Therefore we view the pilot collections as a fundamentally important part of the development of an effective and enduring data collection.

Each Topic Paper will be accompanied by draft reporting standards, a reporting template to collect pilot data, specified reporting periods for which RSE licensees are requested to provide data for in the template and due dates for submission.

Following the collection and review of the Phase 1 pilot data, an updated data template will be provided to entities for completion to further test and clarify the draft reporting standards.

Following the first data collection after the Phase 1 Reporting Standards have been finalised, APRA intends to publish the data received.  It is intended that the released data will assist RSE licensees in meeting their obligations under SPS 515. It will also inform Phases 2 and 3 of the SDT project.

This table summarises the key features of the initial pilot data collection for this topic paper: 

Appendix I – Key changes for the collection of insurance arrangement data