In the second 2014 issue of APRA Insights, published yesterday, the prudential regulator described the quality of data held by life insurers as "mixed".
"A lack of sufficiently detailed, accurate and timely data impedes appropriate analysis in many cases," APRA said.
More generally, the prudential regulator pointed to the "substantial declines in the performance of risk insurance business" during the 2013/2014 financial year.
The industry has been through a period of "significant instability and uncertainty" in which the "cost of a slow weakening in business and risk management practices over a number of years finally became evident", APRA said.
The poor claims experience of the group life insurance sector is down to a number of factors, said the regulator.
Those include the record amounts of default cover being made available without underwriting; a weakening of underwriting controls for optional levels of cover; and automatic acceptance of incremental increases in cover without the need for medical evidence.
APRA also underlined the growth in complexity of total, permanent and disability benefit definitions; changing company attitudes to mental health leading to more claims; and superannuation fund awareness about life insurance (leading to higher claims).
"Despite a number of warnings from APRA, group risk insurers have been slow to accept that significant price reductions combined with softer underwriting practices and enhancements to benefits would ultimately affect profitability," APRA said.
"Nor was the emergence of other underlying headwinds recognised in a sufficiently timely fashion or allowed for in pricing assumptions," said the regulator.
APRA drew also attention to the its new prudential standard SPS 250 Insurance in Superannuation.
The standard includes the responsibility of superannuation trustees to "maintain records of sufficient detail that a prospective insurer can properly assess the insured benefits made available", said the regulator.
"APRA supervisors are reviewing the adequacy of trustees’ implementation of the new prudential standards," said the regulator.
"The availability of sufficiently detailed, accurate and timely insurance-related data appears to be lacking across the industry and APRA has informed life insurers and superannuation fund trustees of the need for improvement in this area," APRA said.
