Retirement villages are like insurance and should be regulated like insurance

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Timothy Kyng is a Senior Lecturer, Department of Applied Finance and Actuarial Studies, Macquarie University. He has been called upon as an ‘expert’ by Fairfax/Four Corners. He believes villages should be regulated by the Australian Prudential Regulatory Authority because villages are an insurance product.

The following is an extract from his opinion piece on the website propertyobserver.com.au. What are your thoughts?

While you may think signing a retirement village contract is similar to buying a house or apartment, it isn’t.

Retirement village contracts resemble insurance contracts more than purchase agreements, only they aren’t regulated like insurance products. 

The lack of regulation increases the risk for retirees. They face considerable delays in receiving their payments when they leave, costs due to the delay, and the potential loss of all payment from companies that don’t need to meet the financial standards of an insurance company.

Most retirement village contracts provide the consumer with a combination of the right to reside in the retirement village (until death, incapacity for independent living, or voluntarily relocation) and an “exit payment” upon leaving. As both the amount and timing of this payment depends on the resident’s death or ill health, the payment is a de facto insurance payout.

This makes the retirement village contract a combination of the right to reside and a de facto insurance policy. But the insurance policy comes from companies that wouldn’t normally be allowed to sell insurance.

Retirement villages are mostly small private companies or not-for-profit organisations. This means they aren’t required to publish their annual financial statements, hold reserves, or have reinsurance arrangements like an insurance company. The consumer can’t be confident that the retirement village is financially healthy and able to pay out the exit fee, due to the absence of information about their accounts and financial condition. 

If retirement village contracts are in fact insurance agreements, then they should be regulated differently – by the Australian Prudential Regulatory Authority and not by state governments, as is now the case”.

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