Maintenance of insurance data will become “one of the biggest issues” for trustees in coming years, according to Richard Weatherhead, head of life insurance at Rice Warner Actuaries.
Weatherhead says a combination of tightened regulation from the Australian Prudential Regulatory Authority (APRA), along with the provisions of the new MySuper legislation, will make insurance a key issue for funds.
“Super funds have had benefit designs in place but they will have to reassess them based on the fact that they are designing specifically for MySuper,” Weatherhead said in a telephone interview.
“Insurance is a very important part of the MySuper equation. Some funds don’t include TPD (total permanent disablement) insurance, and they will have to do that in future.”
Weatherhead noted that under the new APRA standards, trustees will be required to have a “reasonable and well documented basis” for setting default levels of cover.
“This is an area that hasn’t been well documented, so when it comes up for inspection from APRA I think some funds are going to have some work to do to ensure that it passes must,” he said.
“Many funds are ill prepared for this, just as many of them are ill prepared for issues such as the maintenance of insurance data.”
Weatherhead said that funds would need to maintain detailed insurance records for at least five years, but many had “scant data” beyond the past year.
Another key issue was the provision of income-protection insurance, with MySuper presenting an opportunity for funds to offer it as a default.
“One of the requirements is that trustees will have to balance the cost of insurance against the impact on the retirement benefit and, while they have been doing that anyway, that will have to be formalised,” said Weatherhead.
“It’s a balancing act for trustees. They want members to be protected if they are sick and can’t work, but on the other had they don’t want to inappropriately reduce their retirement benefits.”
Insurance is one area where funds will be able to differentiate themselves in the design of their MySuper products, although Rice Warner does not see this being a major factor in the default-product market.
“Our view is that trustees will see the benefits of a single structure in the market, but that is a contrary view to some others,” said Weatherhead.
“Some see it as an opportunity to compete, because under MySuper you won’t be able to compete on much else.”
Richard Weatherhead is a panellist at Conexus Financial’s Group Insurance Summit to be held at the Hilton Sydney on September 3.