As the $8 billion-a-year group insurance sector tries to stave off a regulatory revolution, superannuation funds and their insurance providers are looking for ways to evolve.
Amid increased scrutiny of the group insurance sector, many superannuation funds are exploring how to improve their life insurance offerings. One of the most radical examples of this is QSuper’s move to establish its own insurance arm.
But few funds have the capacity or appetite to become their own underwriters, meaning the rest of the industry is focused on making improvements by working with providers.
One trend to watch in the coming years will be how funds are harnessing technology and big data, coupled with the use of plain English in their member communications, to engage group insurance members in a more personalised way.
Change is underfoot across the group insurance sector as it comes under intense regulatory examination. The Parliamentary Joint Committee on Corporations and Financial Services’ inquiry into Life Insurance has highlighted group insurance as a focus, while both the Australian Securities and Investments Commission and Australian Prudential Regulation Authority are conducting their own reviews.
Meanwhile, a three-stage Productivity Commission review into the default super sector is also underway. In the spotlight is the cost to members of (often duplicated) insurance cover, and how well protected individual members are.
Actuarial consulting firm Rice Warner estimates that 71 per cent of all death cover, 88 per cent of total and permanent disability cover and 59 per cent of income protection cover in Australia is provided through superannuation.
Super funds are under pressure to deliver better default life insurance coverage, while simultaneously being urged to reduce fees to preserve members’ retirement benefits.
A recent discussion paper from the Insurance in Superannuation Working Group, Account Balance Erosion Due to Insurance Premiums, found that: “Despite this coverage, insurance at an individual level may be insufficient to meet the needs of members or their beneficiaries.”
TAL chief executive Brett Clark says that while the group life system is “unique on a global scale and it enables insurance to be provided to millions of Australians who otherwise might not get access to it”, there are still valid reasons to question whether it’s working as well as it could for individual fund members.
Towards a ‘segment of one’
In the midst of all this scrutiny, super funds and their insurers are looking for ways to differentiate their offerings.
QSuper chief officer, of member support and advice, Matthew Halpin, says one of the main reasons the Queensland public sector fund established its own life insurance business, QInsure, in 2016, was that it was “virtually impossible” to align the interests of external providers.
Looking to the industry more broadly, Halpin predicts the use of big data and the smart application of technology could bring into the group life market what is already happening in the investment world.
“We think, from an investment standpoint, about a segment of one. And the way we think about financial wellbeing for members, which is our number one strategic objective, [is] individual financial wellbeing,” he says. “I don’t think we can fight greater tailoring of individual insurance offerings within a group life structure…What will occur over time is a ‘segment of one.’ ”
The Productivity Commission, in a research paper titled How to Assess the Competitiveness and Efficiency of the Superannuation System, states that it is unrealistic for default insurance to meet all members’ needs, so it has “set a lower hurdle” in defining two assessment criteria: Do funds offer value-for-money insurance products to members? And are the costs of insurance being minimised for the level and quality of cover?
But focusing on cost to the exclusion of other dimensions of insurance runs the risk of producing a suboptimal result for members and exacerbating the well-recognised problem of underinsurance.
Adam Gee, the chief executive of research house SuperRatings, argues the quality of the life insurance offering should remain a critical component of assessing a default fund, and warns the Productivity Commission’s assessment criteria are limited.
“The exclusion of insurance from the assessment is fraught with danger, given the important role it continues to play within superannuation and the community more broadly,” Gee says.
As the discussion bubbles along as to whether what is included in default group insurance coverage needs to be overhauled, some in the industry have cited the potential benefits of doing a better job of communicating with members about the value of their existing policies.
Many members are clueless as to the amount of the group insurance premiums automatically deducted from their default super fund each year or what coverage they have.
MLC Life Insurance chief customer officer, group insurance, Suzanne Smith, says consumer expectations are changing and fund members are expecting more tailored, personalised service.
Smith says MLC Life, which is in the midst of a major push to win more industry fund mandates, is doing research using big data to better understand and respond to customer needs and expectations.
“It’s giving us some great insights; people don’t want to hear about the morbid side of life insurance, they really do want to hear about what life insurers are doing to focus on wellness, and to help people. [And they really want to] understand what cover they’ve got,” she says.
Smith says the life insurance industry is cloaked in language and terminology that make it impenetrable to the average person, which only fosters disengagement and cynicism about the industry and its products and concerns about value for money.
“It starts with acronyms…and when you start to think of it like that, it really can be quite confusing,” she says. “We know life insurance is complex, but when we use words and language that are foreign, it makes it hard to connect with people.”
Smith says 18 months into her role at MLC she caught herself getting sucked into that language and speaking it as well.
“The real call to action for me was realising that not everyone understands the way we speak here and if we want to connect and help ordinary people understand life insurance, we need to speak in terms that people understand,” she says.
A director, advisory, with EY, Elizabeth Baker, says the group life sector has “a really good product” but not enough fund members know what it is, and often do not even realise they have it through their super fund.
She says one tip the group life sector could pick up from other insurance sectors would be reducing the length of its communications.
Clark, Halpin, Smith and Baker made the comments attributed to them in this article during a panel session at the Financial Services Council Life Insurance Conference in Sydney on March 30, 2017.