Life insurers urged to examine contracts for transparency – APRA & ASIC

The joint APRA and ASIC review prompts regulatory expectations for Australian life companies.

In a collaborative effort, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have conducted a comprehensive joint review of life companies' practices regarding premium increases. This review encompasses corrective actions taken by certain life companies and outlines regulatory expectations for the industry moving forward.

Life companies are expected to have robust risk management and compliance assurance processes concerning re-rating practices, said both institutions said in a letter addressed to the industry. Additionally, they should ensure transparency and fairness in contract terms allowing for premium increases.

Also, they are urged to clearly explain how premiums are calculated and how they may change throughout the life of a policy. Life insurance products should be designed and priced with a focus on meeting consumers' needs for premium stability.

APRA and ASIC emphasise their commitment to monitoring life companies' progress in meeting regulatory, consumer, and community expectations. The monitoring will cover pricing decisions, marketing and disclosure practices, and product design to ensure improved consumer outcomes.

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The regulators underscore the importance of life companies strengthening their risk management frameworks and compliance assurance related to re-rating practices. Transparency and fairness in contract terms regarding premium changes are highlighted as essential elements for companies to address. 

Additionally, a consumer-centric approach is urged during re-rate decisions, with careful consideration given to the impact on consumers.

Life companies are encouraged to enhance their understanding of future premium increases, driving more rigorous product governance practices. 

Deeper engagement with design and distribution obligations is seen as a crucial step in meeting consumer needs and promoting responsible market practices.

Over the next 12 months, APRA and ASIC will actively monitor the industry's progress, considering regulatory action if the outlined expectations are not met. The joint effort aims to instil confidence in consumers, ensuring fair and transparent practices within the Australian life insurance sector.