There may be room for improvement in the group insurance sector but a push to move away from default cover to an ‘opt-in’ model could leave members out in the cold.
Australia’s current model of default group life insurance within superannuation provides a valuable
safety net for the vast majority of workers.
Research consistently shows the Australian population is underinsured, unnecessarily exposing families to financial hardship if people are unable to work.
Recent proposals to change the current ‘opt-out’ model for group life cover via superannuation to an ‘opt-in’ approach would only exacerbate this problem, leaving many super fund members with no protection.
More than 92 per cent of the working population has default life insurance within their super fund (or funds), providing automatic cover that is more accessible and more affordable than directly purchased retail life insurance.
The system does have its shortcomings, and the industry has recognised the need to address some of them. The Insurance in Superannuation Working Group (ISWG) is leading the way in developing policies to address some important issues.
Less duplication
One of the concerns is that, by accident rather than design, so many people have multiple superannuation accounts.
Australia has about 12.5 million citizens of working age, yet there are more than 29 million superannuation accounts nationwide. That’s more than the total population of about 24 million. As a result, too many people are paying multiple insurance premiums. This can lead to unnecessary erosion of account balances, which is especially concerning for the casually employed and lower-income earners.
UniSuper takes this issue seriously. The fund runs regular campaigns to encourage members to combine accounts, including illustrations of potential savings.
Four months after a new member joins UniSuper, the fund writes to them about using our simple Combine My Super online tool to help transfer their insurance and super from a previous fund.
We also conduct an annual process of running the tax file numbers of all consenting members against the Australian Taxation Office’s Lost Member Registry to identify members with lost super. We then write to those members, letting them know what we’ve found and the steps they can follow to combine their funds.
Better engagement
Another challenge is that most Australians have little to no understanding of their insurance policies.
The industry should make it easy for members to opt-out of unnecessary or unwanted cover; however, we must first ensure they are aware and well-informed.
Members are often confused about the three main subcategories of life cover within group insurance – death cover, income protection, and total and permanent disability (TPD) cover. Likewise, few people have a clear understanding of what level of cover is adequate for their circumstances.
Super funds must look at communicating more simply and effectively to improve awareness and understanding. At UniSuper, we have seen success with targeted insurance messaging within benefit statements, dedicated web pages and insurance campaigns with a clear call to action. These initiatives have all encouraged many members to act.
Innovative design
At the fund level, we strive to tailor our insurance to meet the needs of the different cohorts of our members, who range from casual employees to members on high incomes with higher-than-standard rates of employer superannuation contributions.
We do not offer income protection insurance to members who are casuals or contractors, to prevent potential erosion of account balances. Additionally, we’re able to provide higher relative cover levels for permanent employees at competitive premium levels.
Super funds have a fiduciary responsibility to manage retirement outcomes for members; however, we also have a responsibility to support our members throughout their lives. Insurance is one additional way to ensure we are there for members when they need it most, and are best able to support them in reaching their retirement goals.
The insurance benefits paid to UniSuper members and their families cushion the impact of a member’s death or disablement. Our staff compassionately assists during these difficult times when claims are made.
Insurers have also worked hard on outcomes for individuals, codifying this commitment by recently unveiling the Financial Services Council Code of Practice. At UniSuper, we welcome such commitments to raising the bar on member outcomes.
