In the third and final APRA Insight publication for 2013, the prudential regulator reiterated its concerns about the way insurers have been tendering for large group insurance schemes – particularly when it comes to pricing.
"In APRA’s view, margins were too finely tuned or optimistic to withstand even reasonably expected deviations in claims experience," said the regulator.
But although the life insurance has been "equivocal" about the underlying causes of the deterioration in claims experiences (citing seasonal issues or the global financial crisis), the past year has seen a turnaround of industry sentiment and priorities – with prices for very large schemes "hardening substantially", according to APRA.
"Nonetheless, APRA remains concerned about industry practices, and is increasing the intensity of its supervision in this area," said APRA.
The regulator also called on life insurers and superannuation trustees to improve the quality of member and claims data – particularly during the tender process.
"APRA has issued draft guidance to life insurers on what it considers good practice for tendering for group insurance business, improving the quality of the claims data being kept in relation to insurance through superannuation and the provision of that data in the tendering process," said the regulator.
APRA also drew attention to the adequacy of the reinsurance capacity available to Australian insurers.
"Due to a recent and significant deterioration in claims experience, some [reinsurance] capacity in the group insurance market has been withdrawn or is being more cautiously rationed and there has been a substantial hardening of prices," said APRA.
In addition, some life insurers have significant 'concentration risks" with particular reinsurers, said the regulator.
APRA will also "remain vigilant" to forces driving investment markets that have the capacity to affect insurance companies.
"With this in mind, APRA has increased its focus on the role that stress tests can play in equipping the industry to withstand stress," said the regulator.
