Industry funds wield market power - APRA
At the same time as industry funds have pointed to banks seeking to bundle their services to persuade employers to use bank default funds, the regulator has pointed to industry funds using their market power to influence outcomes in the group insurance space.
Industry superannuation funds control substantial market power in the group life insurance space and have seen fit to wield it, according to an assessment by Australian Prudential Regulation Authority (APRA) deputy chairman, Ian Laughlin.
Addressing the Actuaries Institute this week, Laughlin pointed to shortcomings in the retail life space including the some insurance companies having too often adopted questionable practices because they have been driven to score well in product ratings to attract business from advisers, but suggested that the experience in the group space was no better.
"The practices evident in group insurance have been no better than in retail," he said. "The market for group insurance has grown enormously over the years, mainly due to the success of the industry superannuation fund movement, and so the prizes in terms of business volumes are great."
"In turn, the market power of the large industry funds is considerable, and over the years this power has been wielded to great effect on premium rates and product features," Laughlin said.
He said some of the examples of poor practices seen in the group insurance market included overly generous underwriting concessions for individuals; reliance on anticipated future improvements in mortality experience; poor data capture and management (so analysis is compromised); and marginal pricing (which has pros and cons).
"While there has been solid progress on addressing some of these issues, much remains to be done," Laughlin said.
"These practices have been observed in a group risk market which has some inherent challenges," he said. "For example, some individual plans are extremely large, which can influence behaviour and practices in tenders by both incumbent and prospective insurers because of the consequences of winning or losing the business."
Recommended for you
BlackRock Australia plans to launch a Bitcoin ETF later this month, wrapping the firm’s US-listed version which is US$85 billion in size.
Financial advisers have expressed concern about the impact including private market exposure is having on their tracking error budget, according to MSCI.
State Street will restrict its membership of global climate alliance Net Zero Asset Managers after the organisation dropped its flagship 2050 goals amid ESG backlash from the US.
Betashares has launched a global shares and a global infrastructure ETF as part of the firm’s strategic expansion strategy to support financial advisers in building more diversified portfolios.
