The prudential regulator has issued a warning letter to life insurers and superannuation funds, expressing alarm over a “re-emergence of some concerning developments” in group life insurance that could potentially affect the sustainability of the product and lead to other adverse outcomes.

The Australian Prudential Regulation Authority (APRA) says the worrying trends relate to premium volatility, availability and provision of data, and tender practices.

The regulator has outlined a number of actions it expects the industry to take up, which will ensure insurance offerings and benefits are sustainably designed and priced, provide appropriate value for members, and adequately reflect the underlying risk and expected experience.

Specifically, superannuation trustees need to maintain, and make available to insurers, high quality and sufficiently granular data to facilitate sustainable insurance design and pricing. They must also develop clear insurance strategies and stick to them.

Tender practices should support sustainable insurance, benefit design and pricing and be conducted in such a way that insurers are given adequate time to consult on scheme designs and appropriately price the risks and benefits.

“For most people, the life insurance they receive through their super fund is the only cover they have to protect themselves and their family,” APRA Deputy Chairman Helen Rowell said.

“It’s critical that these issues are addressed so sustainable and affordable insurance is available to members through their superannuation fund over the medium to long-term.

“APRA will continue to engage closely with life insurers and superannuation trustees to monitor their progress as they respond to these issues, with a focus on the interests of current and future superannuation members.”

According to the APRA letter, the worrying trends it observed appeared similar to those seen in 2012 to 2016, a period when insurers experienced significant losses. The period was also marked by a deterioration in group life insurance claims experience.

“Ultimately, members are not best served by such unpredictability and volatility in insurance premiums, with members paying more in future for insurance as a result of unsustainable prices being offered to win tenders in a prior period,” the letter said.

“This volatility makes it more difficult for members to assess insurance costs and the value of the insurance.”

Click here for the APRA letter.