Rising insurance claims have seen a number of superannuation funds recently renegotiate premiums, with some pundits predicting it’s the start of broad sweeping changes for large funds.
In the last week both Cbus Super and Equip announced changes to their insurance cover, as both funds renegotiated terms with their insurer, Hannover Life Re of Australasia.
David Atkin, Cbus chief executive, said premiums for its default death and total permanent disablement (TPD) cover will rise from $1.95 to $3.58 from July 1, in a move that is “unavoidable” due to increased member awareness, unemployment and legal intervention.
“We’ve had priced into the contract further claims and price increases. There’s obviously anxiety among insurers and re-insurers that it’ll continue, so there’s a new normal in pricing and we know other funds going through the pain, or just about to,” said Atkin.
Danielle Press, chief executive of Equip, said the fund had been able to buck the trend in higher premiums, dropping the cost of their salary multiple based default death and TPD cover after noticing the strength of their predominantly white collar membership’s claims history.
“Our member claims history had been particularly good, so rather than wait for our insurance contract to terminate we renegotiated sooner,” said Press. She added that a rise in the retirement age was “inevitable” leading to an “unintended consequence” of further pressure on premiums.
Ian Fryer, head of research at Chant West, said the key to stemming escalating insurance claims and costs is tightening automatic super fund member eligibility, better defining TPD and phasing out large lump sum payments.
“For funds like Cbus, member eligibility is quite open as almost anyone can join. Equip is lesser known and the vast majority of members join at the same time as starting with one of their large employers, so eligibility for cover is tighter. The difference between their insurance experience shows that eligibility for automatic cover needs to be readdressed by large funds.” said Fryer.
He added, “TPD is a big lump of money. It can attract poor behaviour amongst some lawyers and members. What may come out of all this is a move to a model where if a member can’t work again they receive long term income protection payments of 75% of salary rather than say a $500,000 lump sum payment.
Fryer said REST, which was recently awarded the Chant West and Conexus Financial super fund of the year, had a possible model for the future, offering smaller TPD benefits in favour of a long-term income protection offering.