A combination of greater regulatory requirements, higher data standards and an increasing number of claims in group insurance have caused premiums to rise. According to a recent Conexus Financial/CommInsure roundtable, higher premiums are consequently here to stay.
The Prudential Standard SPS 250 requires insurance records going back at least five years, covering claims, membership, the sums insured and the premiums paid. Where data has not been this complete then premiums have not always reflected reality.
Michael Rooney, acting chief executive officer for Media Super, says part of the driver for higher premiums at his fund is this more scientific approach to data. He saw this on Media Super’s most recent insurance deal and contrasts it with how tender negotiations worked in the past.
“It [used to be] a very short and sweet conversation and a lot of assumptions were made when they came out with very competitive figures. This time around there was a lot more questions about our profile and our membership and expected growth or otherwise in the future. A lot of talk around how we thought consolidation was going to affect the membership. So the insurers are taking a lot more care in trying to understand the profile of the funds than they did three years earlier, before they actually come up with pricing.”
In the past this lack of clarity came with a cost.
Jeff Humphreys, principal at CHR Consulting, says: “We always understood that there was poor quality data and as actuaries we would allow for that. So a fund that had what we thought was poor quality data we’d get loaded for some degree of uncertainty.
“It needed someone like an APRA to drive that and that data quality and completeness of process is a great step forward for the industry. It will give us better pricing.”
Frank Crapis, head of industry funds, CommInsure agrees the new data standard makes for a more robust process.
“For me a lot of that thinking or planning was being done in the past but now it’s putting it into a structured framework so that can be reported on and tracked and monitored. So, a lot more questions are being asked.”
These data changes are coinciding with insurers becoming pickier about the risks they want to insure.
“There’s a lot more work being done upfront to determine whether a particular fund or the profile of a particular fund is within an insurer’s risk appetite,” says Crapis.
Jeffrey Scott, executive manager insurancetech and business delivery, CommInsure says APRA’s data standards provide a more consistent basis for pricing.
“Fluctuations in premiums are going to be far less dramatic. Which is a good thing for members and funds. The consistency of definitions means that if a person is going to be comparing between funds they know for a fact that their death cover and TPD cover and for the most part their income protection cover, their benefits inside are going to be fairly consistent as well.”
Karen McAlpine, client manager at Swiss Re, is hopeful this stability will lead to innovation.
“We are starting to see that the three year cycle change and a more of a partnership approach occur with funds and insurers and that the whole value chain starts to look at partnerships and long term prospects. That’s when you start to see innovation in the industry.”
Though how much members take notice is a moot point. Rooney describes a tepid member response in reaction to Media Super’s recent insurance re-rate.
“We were surprised with the lack of interest in relation to the premium re-rate. We really thought we’d get a lot more calls and we geared up the call centre and prepared to talk to members more about it and we really just didn’t get the hit. So I’m not sure if members understand the cost of premiums.”
Indeed there was general agreement of the need to change the low levels of awareness among members.
Jeff Scott says there needs to be the same educational focus as on the investment side.
“People know they need X number of dollars to live a comfortable lifestyle in retirement once they finally turn age 65. We now need to say: if you don’t make it to age 65 – if something bad happens to you – then how is your insurance going to help you through that bad time? And how much is enough? So is one unit of cover enough for you throughout your entire life? If it isn’t, then how do you go about applying for new cover, and then sometimes taking cover away when you don’t have those responsibilities anymore?”
As a mark of this ignorance of insurance within superannuation cover, Scott cited fears that some of the better adverts for retail provided insurance could sway members who were already covered by their superannuation fund.
Bernard O’Connor, company secretary and manager of member services at NGS Super, agreed.
“You’re dealing with a deep-rooted sociological cultural problem. You’re not going to find the answer immediately. I know some retail funds have car crashes [on TV] and it makes it look like fun. There’s a crash and then suddenly it’s all fixed up and everybody’s happy. So I don’t think that’s the answer but there’s a chronic under insurance problem, it’s cultural. It’s like smoking and drink driving. You can see how those campaigns went – 20 years, heavy media blitzing and finally you get a sociological attitudinal change. It’s similar with insurance.”
Michael Rooney believes the answer is a unified industry advertising campaign.
“If you look at where the industry funds got its success it wasn’t through the 20 years we spent advertising on our own. It was the last five or six years where the ISN has advertised on behalf of the group. And the day that decision was made suddenly we come relevant to people and people remember our ads. And that’s something the group insurance industry can learn from – there are some benefits in advertising alone, but there’s also a hell of a lot of benefits being united on education.”
Andrea McDonnell, principal and actuary at Aon Hewitt believes employers are best placed to engage as they can talk to members onsite about the level of cover they have.
“One of the reasons for claims increasing is the health of the Australian population and certain aspects of those deteriorations in some of the modifiable health aspects – so diet, exercise and that sort of issue – one of the things that we’ve seen that some employers have been keen to engage in is just to speak to their employees and to give them more tools and awareness to look at their own health.”
There are other areas for improvement. Ian Fryer, head of research at Chant West, says funds could be smarter about their default cover.
“We looked at the top 30 industry funds and only ten of them have any shape to their default cover. All the rest are just a dollar or two dollars a week for a fixed number of units and you get what you get. And that means from age 40 to 50 you’re covered by 60 percent. And that’s not good enough because members say – ‘okay I’m aged 30, I’ve got a certain amount of cover, I’ve got $300,000 cover – gee that sounds pretty good. But it gets to age 50 and it turns out I’ve got $100,000 cover.’ That’s not enough.
“So default cover needs to be looked at and we need to move away from fixed cost which is easy and move to needs. In addition to that I think there needs to be life events and the ability to dial up.”