Group insurance is a major component of superannuation. ASIC estimates almost 10 million superannuation accounts currently have insurance attached, of which 86% have insurance on the default settings. Members paid an estimated $4.1 billion in insurance premiums in the 2020 financial year alone.

Despite its importance, the life insurance and superannuation industries have worked off poor data in the past. In general, the quality of group insurance data has improved recently; however, most, if not all, data will have some missing or conflicting values, ambiguity, and a lack of granularity.  This has widespread implications and has not gone unnoticed by the regulators.

Why is data quality so important?

The quality and granularity of Insurance Data has become paramount for the management of any superannuation fund, for the following reasons:

• Compliance with SPS 250 requirements.
• Reduced risk of administration errors leading to poor member outcomes and remediation exercises.
• Reconciliation of premiums paid with the underlying membership.
• Allowing insights into the claim experience and early awareness of trends and potential consequences.
• Analysis of the affordability and suitability of the insurance design for member cohorts.
• Accurate current and historical insurance data for optimal pricing during a renewal or tender process.
• Governance of administration and/or insurer transitions.
• Insights into the effectiveness of procedures and communication.

The introduction of PYS and PMIF legislation has for many members changed their insurance status and introduced new complex rules for switching cover on and off. This has heightened the risk and prevalence of administrative errors which are notoriously difficult to successfully unwind.

In addition, ASIC concluded in its 2019 REP 633 Holes in the safety net: a review of TPD insurance claims that all seven insurers failed ASIC’s criteria for good claims data.  In ASIC’s most recent report REP 675 Default insurance in superannuation: Member value for money, released in December 2020, ASIC outlines its key findings from measuring member value for money in the default group insurance space. This similarly concluded that there were major shortcomings in data and analysis.

What can Funds do?

There are many actions funds can take to gain confidence that the insurance data is of the required quality and level of detail. These include undertaking an annual insurance data validation exercise. This should cover member, premium and claims data.

It is becoming more common for service level agreements between funds and their insurers to now include specifications for every data field which must be captured, and what level of data audits will be completed by the insurers, including independent reviews. Funds should review their data management practices and consider revising their data-sharing requirements with insurers to ensure they can access the data required to monitor member outcomes.

An on-going challenge is how to improve the data received from employers, and especially how to try to ensure this data is kept up to date. Key data fields such as a member’s occupation and work status are extremely valuable for optimising the insurance offering but have long proven to be hard to maintain. Funds have had some success in establishing regular reporting with key employers to confirm these data fields and need to build their own processes around this including how to efficiently update their administration systems.

We also encourage funds to perform regular audits and training exercises to ensure data is collected accurately, particularly because the increasing focus on more complex data requirements may lead to an increased risk of administrative errors.

Superannuation funds are dependent on the underlying administration software they use and for many funds, the external third-party administrators (TPAs).  The number of distinct providers in this space is very small with only 2 major TPAs and 6 major software providers. Given there is a concentration of providers, and also only 5 large group life insurers, it should be possible in the future to develop an industry portal to handle group life data more efficiently.

In summary, the benefits of having high quality and readily available data for funds are significant and far-reaching. These benefits include securing data that is suitable for the purpose of optimal member outcomes, early insights into claims experience, trends and pricing impacts, as well as overall compliance with SPS 250. The better and more granular the data the more advantageous to a fund, in an environment where competitive tensions are high.