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AIST Insurance Symposium

Greg Brunner, General Manager

21 October 2014

Overarching Framework

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Governance

Risk Management

Operational

Specifics of SPS 250

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Insurance Management Framework

• Core requirement of SPS 250 and focus of SPG 250

• Must reflect risks and nature of business operations and cover:‐ Insurance strategy – benefits, terms, premiums‐ Policies and procedures for administration of insurance,

underwriting, and claims assessment.

• Insurance arrangements involve RSE licensee, insurers and other parties (e.g. administrators)

Group insurance profitability

4

Mar 2

008

Jun

2009

Sep

2009

Dec 2

009

Mar 2

010

Jun

2010

Sep

2010

Dec 2

010

Mar 2

011

Jun

2011

Sep

2011

Dec 2

011

Mar 2

012

Jun

2012

Sep

2012

Dec 2

012

Mar 2

013

Jun

2013

Sep

2013

Dec 2

013

Mar 2

014

Jun

2014

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Net Profit Margin - Group Business (12 months rolling average)

Group Lump Sum Risk Group Disability Income InsuranceGroup Total

Net

pro

fit

as a

pro

port

ion o

f net

policy

revenue

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Thematic review

• In-depth assessment of insurance-related issues

• To take place throughout 2014

• Will include RSE licensees and life insurers

• Assess how RSE licensees are responding to flow-on impacts of recent poor insurance experience

Thematic review findings

•Governance

–Structures are in place

–Increasingly collaborative relationships

–Room for enhanced Board understanding

–Arms-length if related

–Expertise

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Thematic review findings

•Insurance Management Framework

–SPS and SPG implementation still at early stages

–Insurance Management Framework and Insurance

Strategy need to be embedded in business

processes

–Still too compliance-based

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Thematic review findings

•Insurance Benefit Design

–Need for greater focus on sustainability

–Impact on retirement benefits

–What about voluntary cover?

–More rigorous analysis of member demographics

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Thematic review findings

•Selection and Due Diligence

–Current focus on price

–Need more focus on claims philosophies

–Tender processes could be more robust

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Thematic review findings

•Monitoring, review and renewal

–Multi-layered approach

–Triggers for reviews

–SLAs could focus more on quality rather than

timeliness

–Proactively seek information

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Thematic review findings

•Contractual arrangements

–Room for improvement

–Long delays in sign-off

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Thematic review findings

•Data Management

–A persistent challenge

–Focus on minimum requirements

–Trustees could be more proactive

–How to use data?

–Data quality processes

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Thematic review findings

•Underwriting

–Implications of waivers

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Thematic review findings

•Claims Management

–Generally collaborative

–How to move away from a lump-sum mindset?

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Sustainability

• Benefits/costs of insurance: depletion of retirement

savings

• Level of benefits and features

• Need for redesign of benefits and contract terms

• New paradigm required

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Data quality

• Data quality issues remain

• Trustees have ultimate responsibility for data quality

• Need a clear strategy for insurance data integrity

• Use data to better understand insurance portfolio performance

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Insurer selection

• Consider all aspects of insurance arrangements, not just price

• Look at arrangements from perspective of the fund, members and insurer

• Undertake adequate due diligence of insurer

• Ensure clear, meaningful and aligned claims philosophy

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Outsourcing/Insourcing

• Clear focus on roles and responsibilities

• Need for adequate expertise

• Administrators are key partners

• Data integrity issues are critical

Claims Philosophy

• Alignment between insurer and trustee

• Reflection of the insurer’s ability and willingness to

assess and pay

• Can include a range of indicators

• Expect good practice to evolve

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