EDITOR’S LETTER | Change is afoot in the group insurance sector, particularly for younger members.
In July, Cbus Super announced it had halved the default death cover offered to its members aged under 21. Then in September, AustralianSuper, the nation’s biggest industry fund, became the first to scrap default life insurance altogether for members aged under 25.
AustralianSuper group executive of membership, Rose Kerlin, said the fund made the move after extensive analysis of member experience, feedback on the impact of automatic default insurance premiums, and consultation with the regulator.
Based on current prices, the move is tipped to save a member who joins the fund at age 15 a total of $637 in premiums over 10 years. By retirement at age 65, that savings is projected to increase the member’s retirement balance by nearly $9000, or about $1600 in today’s dollars.
A few days after AustralianSuper unveiled its new insurance deal, the Insurance in Superannuation Industry Working Group released its first draft of a new code of conduct.
This draft code covers issues related to benefit design, premium caps, cessation agreements, duplicate insurance cover, member communications, claims handling, and a push for better data standards and transparency.
Under the code, funds will agree to ensure automatic insurance benefits are “appropriate and affordable” for their membership generally and for certain segments – notably younger members, those making low or infrequent contributions, and those nearing retirement.
The code will also require trustees to try to ensure that the cost of cover does not exceed 1 per cent of an average member’s estimated earnings, with this threshold even lower, at 0.5 per cent, for members under 25.
Other changes designed to prevent premiums from eroding members’ balances include an obligation to stop automatic premium deductions 13 months after contributions cease, and
a requirement that trustees offer to help new members identify any group insurance policies they already have with other funds.
Signatories to the code will also undertake to improve their member communications with plain English definitions and make the process of opting out of insurance more straightforward, and improve their claims handling and response times.
Better data standards and improved transparency have also been recommended to help members compare their choices and make more informed decisions.
A day after the release of the working group’s draft for industry funds, it was announced that the Commonwealth Bank of Australia had sold its beleaguered life insurance arm, CommInsure, to AIA Australia for $3.8 billion.
Given National Australia Bank already offloaded 80 per cent of its life insurance arm, this latest sale signals a changing of the guard, as Australia’s biggest retail banks retreat from life insurance.