Group insurance has typically been a
bit of an afterthought for super funds. Sure, the insurance sub-committee members
have long been immersed in it. Adjudicating in family squabbles over death
benefit payments, for example, can be an emotionally-wrenching task not often
associated with the work of a trustee. But for the most part, the insurance offer
has been a sideshow to the business of building sophisticated investment
portfolios, marketing to attract members and lobbying for a rise in the
compulsory contribution rate.
How times have changed. The panel on group
insurance which I chaired at the recent Conference of Major Super Funds was
full to capacity. Trustees and fund staff are aware that the demand for
insurance always rises in a recession, and are keen to have a positive story to
tell members It’s unfortunate, then, that the news on insurance may be taking a
turn for the worse just as more members are paying attention. For most of the
noughties, the renegotiating of group insurance agreements was heavily in super
funds’ favour.
Many funds have been able to keep the classic ‘$1 per unit per
week’ price to members, but the benefits have just kept on rising. A young
professional with AustralianSuper now gets $257,400 of death/TPD cover for the price
of their Monday morning coffee. However, these great deals were achieved when
high interest rates were providing a tailwind for insurers’ investment returns,
and when the take-up of extra units by members was extremely low. The most
recent research indicates only about 5 per cent of super fund members have bought
extra units of cover, but that should rise as people begin to feel more
insecure. The level of claims will inevitably increase too.
At the CMSF panel session,
IFS Insurance Broking’s Nick Galanakis presented data showing that when Australia’s
unemployment rate was 9.5 per cent in 2003, the weighted average loss ratio on
group insurers’ death/TPD books was over 120 per cent, compared to just 60 per
cent in 2008. As a result, I’m already hearing that boomtime perks like
guaranteed rates are a thing of the past – if you want it, the fund has to pay
for it. To some extent, the expected flurry of super fund mergers will add
scale and keep the pricing on an even keel.
But premiums will inevitably rise, and
some funds are figuring out that improved customer service is the best way to
retain member interest. At the insurance roundtable we put together with
CommInsure for this issue there was much debate on how to maximise ‘cleanskin’
applications, but it was also recognised that a good claims experience is vital
for spreading positive word-of-mouth feedback among members. To find out more
about Superpartners’ adoption of an insurance case management service within
its call centre and other ways funds can engage their members better through insurance,
I commend the roundtable to you. It starts on page 30.
