Sorting out Insurance in Super

2017 has been a year with the most ever industry discussion on insurance in superannuation. The brand of life insurance has been tarnished by a succession of poor publicity, far outweighing the social good and valuable benefits provided to the community.

In group insurance, the key focus has been on building a better experience for members.  While the industry is well-positioned following many positive changes over the last few years, there is still much to do.

One of the big benefits for members highlighted in Rice Warner’s Underinsurance in Australia 2017 report (to be released next week) is a lift in overall death insurance cover to the extent that it now meets the basic needs of those in the working population.  The main reason for this is the automatic cover provided by superannuation funds.

Whilst there is still a deficiency of disablement cover and some Australians remain underinsured for death cover, this is a huge improvement from the situation in 2011 when median death cover met only 62% of needs.  Also, over this period superannuation funds have taken account of changing work patterns and developed benefits for part-time and casual employees as well as those on temporary leave.  These are members who several years ago would generally have had minimal, if any, access to insurance cover.

Insurance in superannuation is affordable for most members. According to Rice Warner’s Affordability Study released in December 2016, the cost of death and TPD cover for an average member is less than 1% of salary over the member’s lifetime, regardless of occupation, and close to 0.5% of salary for white collar employees.  Two of the key areas this report identified as having affordability issues are young members and those for whom no contributions are received by the fund. These have been identified and addressed by the ISWG in its draft Insurance in Superannuation Code of Practice.

The sustainability of group insurance has improved substantially following the large losses made by insurers and reinsurers in 2013 and 2014, caused by actual claims levels exceeding those allowed for in the premium rates.  These losses forced insurers to increase premiums, tighten eligibility conditions and definitions, and make advances in rehabilitation and other support to help members return to work, where appropriate.

Rice Warner’s Annual Group Insurance Review 2017 indicates that premium increase and policy wording tightening have settled down, which is to be expected as most policies have gone through a review since the large industry losses.  Group insurance has been able to respond much more quickly than retail policies given superannuation funds renegotiate contracts with their insurers every two to three years.

Member services continue to improve, with most insurers offering funds a range of technology tools to enable members to easily obtain additional cover or allow claimants to keep track of their claim.   Graph 1 from Rice Warner’s December 2017 Group Risks Insights Bulletin shows examples of the insurer’s technology offerings:

Graph 1.            Insurers technology offerings

Insurers have invested heavily in developing claims services, lifting the support provided to members on claim.  These services help claimants to access support to return to work where relevant and to improve the quality of their life post claim.  Insurers are tailoring their services better to the circumstances of the claimant, which is improving the experience for the individual.  This is particularly relevant for claimants with a mental health illness who are likely to find standard forms and processes hard to deal with.

The Life Insurance Code of Practice has meant that all major life insurers agreed to adopt a set of standards from 1 July 2017. These standards include how insurers deal with their policyholders and set out timeframes for dealing with claims and complaints.

The final Insurance in Superannuation Code of Practice, due to be released this month, will include protocols that will help members to better understand and interact with their insurance in superannuation, generally having a better experience. Whilst the Insurance in Superannuation Code of Practice is not expected to be binding, some funds will adopt it.  A number of the prescriptive rules mean that some large funds will not comply immediately but at least the industry is converging on standardisation.  As the issues are highlighted, any residual issues will be ironed out over time with a view to becoming more widely adopted in the future.  It is expected that as some funds adopt the Code’s communication and claims handling protocols, there will be more pressure on other funds to follow.

Even with these major changes, the market is still faced with considerable uncertainty with the Joint Parliamentary Committee due to report in March 2018 on its inquiry into the life insurance industry and the Productivity Commission review of the competitiveness and efficiency of the Australian superannuation system due to be finalised in June 2018.