Group life insurers must ensure premiums are sustainable throughout contracts, according to a new Australian Prudential Regulation Authority (APRA) practice guide.

They should also regularly review how contracts are progressing, the regulator says.

A draft of practice guide LPG 270 was released earlier this year, after which APRA received six submissions and some requested changes were made.

APRA accepts outsourcing claims management is good practice, but it will require monitoring of arrangements.

Super fund trustees must be aware of differing claims philosophies across group life insurers when contracts are out to tender.

“It is good practice for an insurer to make it clear in its response to a tender that its claims philosophy captures the insurer’s current approach to claims assessment, administration and settlement,” the regulator says in a letter to group life insurers.

“Further, the degree of reliance placed on prior claims experience may be affected where those claims were assessed under a materially different claims philosophy or where knowledge of the claims philosophy is limited.”

APRA has also clarified the amount of data insurers should obtain from super funds. It does not expect insurers to hold details of individual fund members.

“Insurers are encouraged to engage with trustees proactively to obtain the degree of information required to conduct their businesses prudently,” the letter says. “If adequate data is not available, it is prudent to take that into account as a factor heightening uncertainty in pricing and reserving.”

Deputy Chairman Ian Laughlin says the group life industry “has fallen short of appropriate practice in respect of risk management and governance” in recent years.

“The guide reflects APRA’s heightened focus on group insurance and forms part of its response to issues in both the super and life industries,” he said. “APRA expects industry to continue to improve practices in this market.”