Working with doctors and administrators to improve the group insurance experience

Group insurance is coming of age in Australia. It was only a decade ago that the most group cover one could hope for from a personal statement (that is, not requiring any medical tests) was about $300,000. Today, that cover can be more like $1,000,000, and the form is a lot shorter to boot.

MICHAEL BAILEY looks at the work that super funds, their administrators and insurers have done to achieve such advances, and the technological and process enhancements that continue to be made in an effort to rouse Australians from their ambivalence towards death, total permanent disablement and salary continuance insurance.

The Investment & Financial Services Association (IFSA) introduced ‘Lifewise’ last month, an initiative aimed at encouraging Australians to consider their insurance needs. The need to do something is palpable. IFSA has found that the average life insurance payout in Australia is just over $90,000, funnily enough, about what you get from a default single unit of cover in most industry funds.

The Sydney launch of Lifewise was a memorable event on several levels. The stories told by two men who had claimed on their insurance policies were harrowing to say the least. One tends to relate an insurance claim to being involved in an accident, however the father who slipped into depression after his daughter was killed in a boat crash on Sydney Harbour was a reminder that life really can be too cruel and unpredictable to live it uninsured.

Another impressive aspect of the launch was that on the same panel alongside the brave insurance beneficiaries sat representatives from both the retail and group insurance camps. In the past, group insurance was seen as an annoyance by the established life companies.

The conventional wisdom went that people glimpsed something about one or two units of death and TPD cover in their super fund member statement, and assumed that was insurance taken care of. Retail insurers also worried that the proliferation of nominal default insurance coverage through group policies was cementing retail life’s reputation as something that had to be sold aggressively to people, rather than embraced by them.

The structure of the Lifewise event indicated something of a rapprochement between the two insurance streams, as Colin McGuinness, the strategic projects manager for industry fund Auscoal, received equal airtime to Jim Minto, the managing director of Tower Australia. Of course, Minto is not alone among insurance executives who’ve seen their group risk premium inflow grow at least as fast, if not faster, than their book of retail, intermediated premiums in recent years.

According to recent figures from actuaries/ researchers Plan For Life, total premiums of $7.19 billion flowed into Australia’s risk market in the year to December 31, 2008, with $2.17 billion (or 30.2 per cent) coming from the total group risk market, incorporating death, TPD and income protection cover.

This represents steady, if modest growth in group risk’s share of the total pie from 28.8 per cent in 2006. The head of underwriting at MLC, Tracey Crowe, is one of many who thinks this gap will continue to close. “There’s a huge underinsurance problem in Australia and a lot of that is to do with the complexity of the process.

The more complex your product, the more expensive it’s going to be. For many Australians insurance through their superannuation fund can be a simpler product that meets their needs,” she says. Spurred on by the boom times, however, the average group insurance offer has also considerably closed the gap on its retail counterpart in recent times.

As Matthew Plenty, the national business development manager for Comminsure, observes, “gone are the days when a fund only wanted to spend a dollar per member per week for a scale that provided the most cover to a 17 year old and not much cover at all to a 50 year old…in the last 12 months we’ve seen big strides to funds actually addressing the default cover level by doubling it, or changing the shape of the fund’s scale to address more needsbased insurance.”

As partisan an observer as Vicki Doyle, the general manager of super and investments at Suncorp, is seeing group insurance as a potential solution to Australia’s underinsurance problem, rather than a cause of it. “Unless you’re really wealthy or you have complex needs around a business, for example, then I’d say group insurance is generally a suitable product to cover people through to retirement,” she says.

The virtual waiting room

This air of confidence around group insurance masks a harsh reality. The take-up of group insurance units beyond the default, which in most cases represents an underinsured level, is still extremely low, and insurers can’t be certain just how many would-be applicants drop out along the way. At a recent roundtable hosted by Investment & Technology in conjunction with Comminsure, one of the insurer’s business development managers, John Mok, estimated that only 2 to 5 per cent of its total group membership – which in 2008 paid premiums of $433.3 million – took advantage of additional coverage beyond the default offered to them.

Of those that did begin the process of applying for additional units, IFS Insurance Broking studied five of its large industry fund clients and estimated dropout rates of between 11 and 25 per cent, depending upon the “occupation demographics” of each scheme, with blue-collar type funds revealing a higher dropout than the white-collar.

The head of operations at Media Super, Michael Rooney (a semi-blue collar fund these days mixing printers with Fourth Estate types) has no illusions as to why so many manual workers are frustrated in their attempts to boost cover. “When the insurer only needs a completed questionnaire from the member, we’ve got relationship guys on hand who can help members over the phone with that, we can get it back to the insurer quickly and thoroughly and it gets good results,” he says.

“However, when a doctor’s involved, that’s where we see the frustration from members because we’re not getting reports back in a timely manner. The doctor keeps telling us ‘we’ve done it’ or ‘we’re going to do it’ but it just doesn’t come through.

And that’s where we lose them. No-one ever seems to talk about the doctor’s part of the cycle – whether you’re applying for cover electronically or by phone, the need for doctors’ reports is always going to be there and that’s where we tend to lose members.”

Of course, the group insurance industry is doing its best to reduce the need for doctors’ reports in the applications process. Many use third party providers, such as Lifescreen, to visit applicants in their workplaces and administer blood tests, body mass index measurements and the like. Some like IUS have their own operatives make the on-site visit.

The aforementioned Auscoal, whose membership base comprises mostly coal miners, could be assumed to have medical reports flying around all over the place. Colin McGuinness admits it wasn’t so long ago that Auscoal was “in the Ark” with just $50,000 of default cover for 15 year olds to 65 year olds (it cost $7 a week to boot) and a maximum of $300,000 coverage without fronting a doctor.

The fund set about working with Comminsure to comfort it around the level of ‘group’ fatality risk in coalmining. At one stage Matthew Plenty, national business development manager at Comminsure even went down a mine to be assured there were not “little dwarves running around, picking away”, and that in fact in McGuinness’ words, “you could fire a gun and not hit anybody, it’s so highly mechanised these days”.

As a result, younger miners can now buy up to $1,000,000 of cover without the need for medical evidence, and older workers $800,000.

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