HESTA forecasts its members are set to save 10 per cent on insurance premiums over their careers under the fund’s new aged-based pricing model, due to come into effect from March 2018.

The industry fund for health sector workers, the nation’s fifth-largest super fund, with 830,000 members and $40 billion in assets, is the latest in a string of funds to respond to calls from the regulators to improve the value of default group insurance arrangements, particularly for younger members with lower balances.

HESTA’s new pricing for death and income protection insurance sets lower premiums for younger workers, reaching a ceiling of $1.34 a week for those aged 45 to 54, in tandem with scalable levels of cover.

Analysis by actuarial and consulting firm Rice Warner found the new pricing translated to the average member paying $1494 less in fees and accumulating $4019 more in their super account over a career spanning from age 22 to 67.

HESTA chief executive Debby Blakey said the new pricing model “reached the right balance” between providing appropriate insurance cover and ensuring premiums did not erode account balances.

“For many of our members, the cover they receive through their super may be the only personal insurance cover they have,” Blakey said. “We introduced age-based pricing, as it more accurately reflects where a member is in life, including their risk and insurance cover needs. While the majority of members are paying less in total premiums for their default death and income protection cover, there are some members who have had a fee increase. We have done everything we can to minimise the increase in fees for these members, while also ensuring all members benefit from enhancements in cover.”

Changes for income protection

HESTA announced in May that it was dumping its previous group insurance provider, CommInsure, for rival AIA Australia. In September, AIA Australia inked a deal to buy CommInsure from the Commonwealth Bank.

After an insurance review with its new provider, HESTA upgraded its income protection cover to include a $10,200 lump sum to eligible members to help retrain or re-educate, or to refit their home to cater for a permanent disability. It is one of the few super funds to offer default income protection cover to members over age 67.

“We really wanted to find a way to support members to deal with these often very difficult life changes and aid their potential recovery, including reconnecting with society and work,” Blakey said. “The great thing about income protection is that it keeps the conversation open around rehabilitation, which is a key pillar of our cover. Programs to assist rehabilitation are part of how we’re building the financial resilience of members by [helping them] stay connected with their networks, as this is proven to aid overall wellbeing and recovery.”

In detail, younger HESTA members will pay lower life insurance premiums but also see a reduced level of cover. A 20-year-old member, for example, will see cover reduced from $85,000 to $25,000 and the weekly insurance premium cut from $1.09 to 16 cents.

In contrast, a 40-year-old member’s cover will rise from $84,000 to $85,000 as weekly premiums rise from $1.09 to $1.18.

Towards retirement, 60-year-old members, whom insurance companies consider a high risk due to age, will 21 cents a week more, $1.30 up from $1.09, for an unchanged $17,100 in cover.

Income protection insurance will cost less for younger members as well. Under the changes, members aged 15 to 34, instead of paying a fixed $2.06 a week fee with a 90-day waiting period, will now pay gross total fees ranging from 37 cents to 97 cents a week.

The fund states that the changes also align the release of insurance benefits for terminally ill members with the 24-month requirement under the Superannuation Industry Supervision Act for access to super.

HESTA’s changes come as the industry more broadly is working to respond to concerns about default insurance fees eroding small superannuation balances and working against the long-term interests of young workers.

Other industry funds to make changes to cater for younger members earlier this year include AustralianSuper, which introduced an opt-in life and disability insurance policy for new members aged under 25, and Cbus Super, cut its cost for providing default death and total and permanent disablement cover for 15- to 20-year-old members from $104,000 to $52,000 and lowered weekly premiums for those members from $7.16 to $2.68.

Join the discussion