- On 17/01/2020
- insurance, PMIF
The Treasury Laws Amendment Putting Members’ Interests First (PMIF) Act 2019 will be coming into effect from 1 April 2020. Two new considerations for trustees resulting from PMIF are whether to adopt the exemption for ‘dangerous occupations’ and the terms for switching on default cover for members who are ineligible when they first join a fund.
Our blog in December Interpreting the high risk occupation carve out under PMIF covered considerations of the emergency services worker or a dangerous occupation exemption under PMIF. The dangerous occupation exemption requires certification by an actuary that the occupation is in the riskiest quintile (20%) of Australian occupations, being the occupations across Australia and not those specific to a Fund’s own membership.
To assist actuaries in providing this certification, the Actuaries Institute (Australia) issued an Information Note¹. This provides the list of occupation sub-major groups from the ABS occupation definitions (ANZSCO) that are considered to be in the top quintile of dangerous occupations for Death Only and Serious Injury.
The list consists of 12 sub-major groups for Death Only and 13 sub-major groups for Serious Injury. Within these sub-major group are over 350 occupations. For some of these risky occupations it could be difficult to obtain automatic cover outside group insurance through the superannuation environment. Recent research carried out by Rice Warner indicates a trend whereby some of the newer retail life products now cover occupations that were previously uninsurable within the retail life market. Despite this, there are still some occupations for which retail cover cannot be obtained for Total Permanent Disability (TPD) and Income Protection cover.
One of the challenges for funds will be to assess the impact that having (or not having) the exemption could have on its membership. As a first step, funds need to understand how many of its members are below the age of 25 and those with an account balance below $6,000 who are in a dangerous occupation. The hurdle that most funds face is the lack of information on member occupations to be able to carry out an assessment, with funds only becoming aware of a member’s occupation at claim time. However, this limited information can be useful because, even though the cohort of claimants may not necessarily be representative of a fund’s total insured membership, it can provide an indication of how many past claimants with a dangerous occupation would not have default cover post-PMIF. This proportion will vary from fund to fund.
Before PMIF, members’ default cover generally started on the day they joined their employer, subject to being actively at work. Under PMIF, other than a few exemptions, default cover cannot start for members under age 25 or with an account balance less than $6,000. Therefore, new rules are required to cater for these members.
Key considerations are the availability of the information, the ease of explanation and administration as well as the risk involved. There are potentially many different options open to a Trustee which could give different outcomes not only for the cover provided to the individuals impacted but also to the cost of cover for all members. Some of the considerations include the actual date that cover starts, the date of measurement of at work status, use of exclusions and any need for SG contributions to be received.
Due to the complexity of the legislation, members can be left confused and unaware of whether they have cover and what terms apply. Providing clear wording and visual illustrations can make communication simpler. It will be a challenge for most funds to think through and develop these eligibility rules and pathways of obtaining cover to ensure the rules are as exhaustive as possible, capturing the various scenarios a member can be in.
When considering issues relating to PMIF, it is important that Trustees additionally consider their responsibilities under SPS250, which are due to be amended from 1 July 2020, with the draft changes now available for comment. One of the proposed new requirements is that a status attributed to a beneficiary in connection with the provision of insurance must be fair and reasonable. It would therefore be prudent for Trustees to consider how the new requirements could impact changes being made to accommodate PMIF.
¹ The Actuaries Institute’s Information Note: Dangerous Occupation November 2019