The Australian Prudential Regulation Authority (APRA) is monitoring risk-sharing arrangements between life insurers and superannuation funds.

In a House of Representatives Economics Committee hearing, Deputy Chairman Helen Rowell confirmed the regulator wants to know more about this area.

“There are usually limits on the degree to which premiums can be adjusted up or down, and there would also be governance controls and contractual terms and conditions that would govern that,” she told the committee.

“Whenever these arrangements are entered into, it is certainly something APRA has a keen interest in understanding, particularly in the group insurance space.”

Ms Rowell was responding to a claim by committee chairman David Coleman that super funds receive commissions from life insurers to sell policies to members.

It is illegal for life insurance commissions to be paid for group life.

APRA Executive Member Geoff Summerhayes says the regulator is aware of “practices where insurers and trustees have risk-sharing arrangements as to the performance of individual schemes, and APRA does not have an issue with that”.

“Trustees who have the primary relationship with members can pursue initiatives around health, better education, better information, which has been shown to improve the performance of claims outcomes, which ultimately is in both the member’s best interest and the trustee’s and insurer’s,” he said.

Mr Coleman asked Ms Rowell if there is a potential conflict in a super fund effectively marketing life insurance products and then receiving a financial incentive based on the rate of claims against those products.

“I do not think we would characterise the arrangement you are talking about as a commission or an incentive to reduce claims,” Ms Rowell said.

“What Mr Summerhayes described is an arrangement where it is an experience adjustment rather than a commission.

“Its aim is to smooth the premiums for members and the outcome for the fund over time.

“I think there does need to be constraints around it; it does need to be well managed and well governed.”