The Australian Prudential Regulation Authority (APRA) today announced it has given directions to the Colonial Mutual Life Assurance Society Limited (CMLA) in relation to its unit‑linked life insurance products.

In March 2005, the Australian Securities and Investments Commission (ASIC) accepted an enforceable undertaking from CMLA in response to unit pricing issues that had been identified by CMLA; as part of this undertaking, CMLA was required to appoint an external compliance consultant to review its unit pricing practices and processes. The report highlighted areas where CMLA needs to improve its processes and governance framework.

The directions, given under the Life Insurance Act 1995, require CMLA to implement a plan to address deficiencies in its unit pricing processes and obtain an independent external review of the implementation of the plan in twelve months’ time. The directions also require CMLA to ensure that affected policyholders are fairly compensated.

CMLA has already compensated a significant number of policyholders for unit pricing errors. In developing the additional restitution programs, APRA will work with CMLA to ensure that the methods proposed to compensate policyholders are reasonable. When the compensation methodology is approved by APRA, CMLA will contact affected policyholders with details of the compensation arrangements.

“Unit pricing issues are of concern to regulators across the globe. Life insurance companies, fund managers and superannuation trustees need to have robust governance and control processes in place to ensure errors do not occur", APRA Deputy Chairman, Mr Ross Jones, said.

APRA and ASIC have been cooperating on this matter to ensure that investors receive fair compensation and that a suitable framework is in place to ensure similar issues do not recur. APRA and ASIC have also been working together on a joint project to examine unit pricing practices in the funds management and superannuation industry. 
 

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry.
APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. APRA currently supervises institutions holding approximately $2.0 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.