LGSS shifts insurance out-of-house

The $6.1 billion NSW Local Government Superannuation Scheme (LGSS) will cease self-insuring the inbuilt cover in members’ accounts after conducting an extensive tender of external providers.

Tower will provide death and total and permanent disablement (TPD) cover for the fund in an open contract from October 1 following an LGSS tender run by Rice Warner Actuaries. The insurer already provided salary continuance and voluntary cover for the fund’s members. Peter Lambert, the chief executive officer of LGSS, said that the decision to outsource the inbuilt insurance component of member accounts was based upon actuarial advice and some “compelling numbers” from Tower. “Our actuary recently reviewed the claims history of our self-insured offering and recommended that the amounts we were offering could be substantially higher,” Lambert said. “Then we found that we could get better terms by going external.” An example of the new arrangement is that for members aged 33 years or less, one unit of death and TPD cover from Tower will enable them to claim up to $116,000. Under the former self-insuring model, this sum would be $68,000. While the actuarial advice received by LGSS recommended that this same unit of cover be modified to pay out $74,800, the Tower offer was more attractive since it promised the higher sum for the same cost. LGSS’ motive for reassessing its insurance offering to members was the recognition that the pool of capital from which the fund drew to pay claims had increased substantially. Lambert added that by outsourcing its insurance provision, LGSS would be one step closer to qualifying for public offer status under requirements set by the Australian Prudential Regulation Authority. Since its inception in July 1997 the fund had provided inbuilt insurance to members, Lambert said. “While trustees have generally preferred to have self-insuring arrangements as we believe we have a greater knowledge of our members’ workforce, the numbers were too compelling.”