Law reform is needed so the group insurance sector is less constrained in its ability to support wellness and provide early access to rehabilitation, John Berrill writes.
Nearly 15 million Australians have superannuation, almost the entire working-age population. The vast majority have death, total and permanent disability (TPD) and/or income protection insurance in some form. Group policies account for 70 per cent of all life insurance Australians hold.
Accordingly, super funds and their life insurance partners are well placed to have some influence on important social issues, such as suicide and obesity, and have a substantial impact on their members’ health outcomes and capacity to work.
But super funds and insurers are hamstrung in their ability to offer support to members.
The Health Insurance Act 1973 prohibits life insurers (and general insurers) from paying for medical treatment that may otherwise be payable under Medicare or by a private health provider. This means group insurers cannot pay for most medical services to treat super fund members’ injuries or illnesses, or fund many medical-related rehabilitation services.
Group insurers can offer retraining services as part of income protection benefits, and some do; however, under the Superannuation Industry Supervision Act, (SIS) trustees offering TPD benefits via MySuper funds can offer only benefits consistent with the definition of ‘permanent incapacity’, which does not include a re-training clause.
The trouble with TPD
The definition of TPD has been tested in the courts over the years. A number of cases have raised the question of what constitutes an acceptable level of re-training before a claimant becomes eligible for a benefit. The courts have generally found that if a claimant would require more than minimal re-training to return to their occupation, they might be classified as TPD.
This has caused consternation in the industry, amid many examples of claimants being paid TPD benefits and then re-training and returning to work. This is not consistent with the intention behind the design of TPD benefits within superannuation, namely to top up the retirement incomes of those whose working lives are cut short because of disability.
Some commentators have pointed to this as contributing to the rise in claims and the adverse claims experience of group insurers in the last five years. Meanwhile, rising premiums, leading to account erosion, have come in for media criticism in the last few years, attracting the attention of government and regulators.
There have also been criticisms that TPD lump sums provide a disincentive to rehabilitation. Others have criticised long-term income protection insurance benefits as not consistent with the sole or ancillary purpose test under the SIS Act for retirement incomes, particularly if not accompanied by continued payment of superannuation guarantee contributions.
Insurance within superannuation has been an integral part of the retirement-income system in Australia, providing cost-effective insurance against people having their working lives cut short because of injury or illness and thereby not having enough money to live off in retirement.
Prevention, rehabilitation and re-training all fit well in the policy intentions underpinning our system of default insurance benefits within superannuation. Such initiatives can reduce the incidence and period of incapacity, which enhances the ability of members to work and continue to accrue superannuation during their working lives. Group insurance would still provide a safety net for those whose working lives are genuinely cut short because of injury or illness.
The government should propose legislative amendments to enable superannuation funds and their insurers to offer limited rehabilitation and re-training. The definition of TPD and permanent incapacity in the SIS legislation should also be amended to include a reasonable retraining clause.
Income protection, or periodic benefits, can also encourage rehabilitation, but any such benefits must be accompanied by payment of superannuation guarantee contributions to be consistent with retirement-income policy.