The Financial Services Council wants the law changed to allow life insurers to pay injured claimants a bonus to get back to work faster, with potentially big implications for the group insurance sector.
The peak body’s chief executive, Sally Loane, argued for the change in her opening address to the Financial Services Council’s annual Life Insurance Conference, in Sydney on Thursday, March 30, 2017.
“We need the government – and Parliament – to immediately remove the legal barrier that currently prevents life insurers from being able to offer targeted rehabilitation payments to facilitate recovery for sick or injured persons and a more speedy return to work,” Loane said.
The FSC’s lobbying on this point includes a push to extend such changes to the Superannuation Industry (Supervision) Act, so that such incentive payments could also be offered in the group insurance sector.
Such a change could have huge implications for the way super funds interact with sick or injured members who are drawing on income-protection policies or awaiting a decision on a total permanent disability claim.
All MySuper funds – those funds eligible to be nominated by employers as a default fund for their workers – must automatically sign up their members to a group insurance policy. These group insurance deals include a combination of death and disability cover, that often also includes a temporary income protection component.
Group insurance feeling heat
In the financial year ended June 2015, the group insurance sector collected $7.9 billion in premiums and paid out $4.4 billion in claims.
The role of group insurance within superannuation is under the spotlight. A Parliamentary Joint Inquiry, the Australian Securities and Investments Commission, and the Australian Prudential Regulation Authority are all conducting reviews. The Superannuation Complaints Tribunal has also highlighted insurance-related issues as the biggest source of complaints to the dispute resolution body.
Loane said the FSC firmly believes group insurance within superannuation is an important safety net for those who would not otherwise be able to afford or obtain cover.
“We need to preserve insurance inside superannuation, and we need to preserve the current opt-out mechanism. Without this, people would slip through the net. It would also make insurance more expensive, potentially pricing out or removing access for many Australians who receive cover today,” Loane said. “Today, 92 per cent of the working population is afforded some type of insurance cover that would not otherwise be in place without group arrangements.”
Loane said the current system also provides important social and economic benefits.
“In 2016-17 alone, the government’s welfare bill is estimated to be $158.6 billion, or 35 per cent of all government spending this year.
According to statistics compiled by Rice Warner, the presence of group insurance reduces this annual cost by about $403 million.”
Accumulation and protection
The FSC is participating in the Insurance in Superannuation Working Group, which has pledged to produce a binding code of conduct by the end of 2017. Along with developing the code to cover trustees, the working group’s priorities include:
- Reducing benefit erosion on superannuation account balances for members, including establishing the right level of automatic cover for young people and low income earners.
- Reducing inappropriate multiple insurance policies.
- Providing better and more timely assistance to members during claims.
- Improving superannuation fund member communications on insurance.
- Improving data standards to improve service to members.
- Undertaking independent research on the costs and benefits of group insurance within superannuation.
The Insurance in Superannuation Industry Working Group is seeking submissions for the first of a series of discussion papers to assess the framework of the group insurance sector. The paper, Account Balance Erosion Due to Insurance Premiums, examines how to address the issue of members paying for cover they don’t need through having multiple super accounts.