The days of super funds reviewing their insurance policies every three years are over, with up to three upgrades a year becoming common practice according to deputy chief executive of the Australian Reward Investment Alliance, Paul Watson. “It is now not uncommon for funds to roll their product disclosure documents up to three times a year just to integrate continuous insurance enhancements,” Watson told the Australian Institute of Superannuation Trustees at an insurance symposium last month.
New legislation introduced on July 1 this year, requiring all employer default funds offer prescribed minimums of death insurance cover, highlights how intertwined insurance and super have become. The “core purpose” of the sole purpose test is now not only to provide a retirement benefit, but must include death cover as well.
However Watson said the real competitive action between funds was under the “ancillary purposes” of the sole purpose test, in areas such as employment termination insurance and income protection for temporary disability.
Watson said super funds have largely focused on improving in three main areas: the range and mix of insurances, the sum insured, and relative price. “Funds not actively competing on these [three] fronts, whether public offer or not, risk falling behind and off the radars of employers and members.”
However, he also warned of the other extreme: trustees going overboard to improve insurance. He said trustees risked not acting in the best interests of existing fund members in a bid to introduce new-fangled products to attract prospective members.
SuperRatings managing director, Jeff Bresnahan, thought this was already happening at many funds. At the same insurance symposium, Bresnahan blasted funds for “ramping up” the default cover – at a significant cost to members – without enough consideration of what it will do to members’ retirement savings in the long term. “I think some of you have gone too far,” he said. “Members who were paying $100 may now be paying $400 a year. That’s a big chunk of money for someone on an average income and is going to have a big effect on eventual retirement income,” he said.
He challenged the opinion put forward by Watson that insurance was an important issue on the fund raters’ radars. “Are you doing it for brownie points from [SuperRatings]? Well, we don’t rate it that highly.” However, Bresnahan did concede SuperRatings has increased the weighting of insurance in its overall rating calculation. Whereas last year the insurance category made up 7.5 per cent of the final rating, this year it moved to a 10 per cent weighting.