On August 20, those responsible for providing group insurance through superannuation will meet in Sydney to discuss ways of making it more sustainable. Here are some of the ideas that will be aired.
1 The industry must work together to find answers
The survival of group insurance depends on funds, trustees, regulators and insurers working as a team, says Michael Dwyer, chief executive of First State Super, as none individually has the answer.
“I don’t think anybody has got the one answer. We are going to have to work through the options available,” he says.
The risk is that the youngest and healthiest members will exit insurance cover in response to large hikes in premiums, impacting further on the sustainability of pricing. Dwyer says if members seeing these increases on their statements did not act, there was still a risk of parents advising children living at home who had started work to opt out.
He believes engaging members on the value of group insurance cover has never been more important. “We have an educational role to make sure they do not withdraw from insurance at the wrong time in their lives.”
2 More in-house resources for insurance
Over the last 12 months Damien Mu, chief executive of AIA Australia, is reporting greater manpower used by funds and insurers to rethink and manage their insurance offerings and to deal with the new SPS250 regulation, which has given funds greater requirements to be active in managing insurance.
He believes that some of this extra work will stay in the industry as many funds move from traditional, three year insurance reviews to two year reviews and in some cases, one year reviews.
“Most clients have moved to a far more regular review cycle of benefits and experience to track, monitor and look for improvements ahead of more regular rate guarantee periods, to ensure the right balance between cost and member benefits,” he said.
Although, he conceded not all funds were changing their models. “There will be some who actively review their insurance to tailor it to suit their membership profile and demographics and some funds that go for a very vanilla offering,” he said. “We are seeing funds at varying stages, as some have been more active over a longer period of time.”
3 Tighter total and permanent disablement (TPD) rules
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, says Ian Fryer, head of research at Chant West.
“TPD is a big lump of money and can attract poor behaviour amongst some lawyers and members,” says Fryer. “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 per cent of salary rather than say a $500,000 lump sum payment.
4 More tailored TPD
REST Super scooped Super Fund of the Year at the Chant West Conexus Financial awards in May, in large part due to pioneering a new insurance offering for members.
Damian Hill, chief executive of REST Super, said the fund had put a greater focus on members’ future income cover rather than Total Permanent Disablement (TPD). “Our members’ key asset is their ability to earn future income, and that is really where we needed to focus our disability-type insurance,” he says. “When we put that in place it was quite unique. We weren’t afraid to do it, because we’d done the research and we knew it applied to our member demographic.”
5 More tailored TPD (again)
Changes brought in at NGS Super in 2014 mean TPD payouts are reduced for some age groups, while it has been made easier to claim income protection. In future, there will be a greater emphasis on rehabilitation and retraining under income protection, before TPD is offered.
The change was partly driven by the belief that people better manage an income stream than a lump sum. “The lump sum that is given to people does not last that long, people are not good at managing it,” says Laura Wright general manager, NGS Super.
The new design is seen as likely to reduce the cost of claims, which has encouraged Comminsure to agree to a three year deal. This length of deal is becoming increasingly rare, as most funds see soaring claims.
Wright admits that without the changes members would have been looking at rises in premiums of at least 30 per cent. She sees change as overdue. “For many years insurance design has been fairly similar. We have probably been evolving slower in insurance than in investment choice,” she says.
The new offer was launched on July 1, when NGS rolled out its new online insurance ‘needs calculator’ which can quote prices for different levels of cover.
6 One year insurance deals
AustralianSuper is to renegotiate its group insurance on an annual basis, a move leading figures in the sector believe will become the norm for other superannuation funds.
Paul Schroder, group executive – membership at AustralianSuper hopes one year deals will come without the fear of mispricing that come with three-year deals, whereby reinsurers, insurers and funds all seek to strike the best possible deal based on forward estimates.
“It is a much better situation to have members pay for the experience they are actually having and not go through this three year process with the risk the contract could be taken away and where people have to take windfall gains or losses.”
The appetite for writing new group insurance business has shrunk after one of the three big reinsurers, RGA, stopped pricing any new TPD business, while Swiss Re is largely only working with current clients. This has made insurers wary of signing three year deals unless premiums are enough to cover projected rising payouts.
Some believe one year deals will broker lower premium rises than for three-year deals. Thierry Bareau, head of life insurance at Rice Warner, says three year deals have tended to benefit super funds of late, and that several reinsurers would now only sign one year deals as a consequence.