The Association of Superannuation Funds of Australia’s chief policy officer, Glen McCrea, predicts “more pain ahead” for the superannuation and life insurance sector as the sixth round of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry looms.

Speaking on a panel reviewing the Insurance in Superannuation Voluntary Code of Practice at the Investment Magazine Group Insurance Summit, McCrea said: “The royal commission will raise more issues and there will be pressure for further change. The future of group insurance is something that we need to protect and something that provides real value but, unfortunately, I think there is probably more pain to come.”

The panel’s moderator, Choice chief executive Alan Kirkland, said there was “still a degree of complacency” in the sector.

“I don’t think it’s cleaned up enough…and [I see] maybe partisan support for group insurance potentially disappearing,” Kirkland said.

This comes as the sector is undergoing an immense amount of pressure to justify premiums, as the federal government questions whether member balances are being eroded by unneeded life insurance.

In a recent blow, a Senate Economics Legislation Committee recommended that budget proposals designed to overhaul the $2.7 trillion superannuation sector be passed, despite life insurer and fund concerns about what they see as a potentially unworkable implementation date.

At the same time, the Hayne royal commission is readying to question witnesses from AMP, CommInsure, REST, TAL and the Financial Services Council (FSC) about potential issues in group insurance.

Code a ‘good start’

Also appearing on the Group Insurance Summit panel was Australian Prudential Regulation Authority general manager Adrian Rees, who commended the life insurance in super code as “a really good start”, noting that not everyone in the industry saw eye to eye on some of the inclusions.

“There are certainly areas where there needs to be more work,” Rees said. “The two particular ones we’ve called out are multiple accounts and the question of a broader focus on not eroding member benefits. Whether it’s the code of the new [super] legislative package – if it gets passed – that’s a big focus…and the third one would be definitions around terms, and [total and permanent disability] in particular, making those more transparent…There are some challenges for trustees there overall.”

The final version of the code was released late last year. It was put together by the cross-industry Insurance in Superannuation Working Group (ISWG) at the behest of then-minister for financial services Kelly O’Dwyer.

It set up a framework, including guidelines for claims times, obligations providing information, cessation of cover notifications, definition templates and statements of key facts.

The Australian Taxation Office states that at June 30, 2017, more than 14.8 million Australians had a super fund account, with about 40 per cent of members having more than one.

Nick Kirwan, the policy manager for life insurance at the FSC, said the “real problem is multiple accounts, not life insurance”.

“If you fix multiple accounts, then this all goes away and nobody gets a bad outcome,” Kirwan said.

But ASFA’s McCrea said multiple accounts needed to be “put into perspective”.

“It’s not just an insurance in super problem though,” he said. “I think it’s a broader issue and it’s something we as an industry has struggled with…But you’ve always got to be careful you are not knocking out accounts with intrinsic value – for example, [accounts with] really good insurance. You need to design the system in such a way that if you’re going to one account, that is the best account. The code can help solve it, but at the end of the day, we need to solve the super problem first.”

Dana Clarkson, senior manager of insurance and member services at Prime Super, commented that “we [the industry] can always get better”.

“We can always learn from our mistakes,” Clarkson said on the panel.

Later, APRA’s Rees urged the group life sector to consider moving on from a “one-size-fits-all approach” to providing insurance designed for distinct cohorts amongst the country’s retirement savers.

“We see a range…Some funds do a lot of work on what their members’ needs are to put into place the insurance arrangements they need,” Rees said. “But there are other examples where not a lot of research had been done. One thing the industry needs to consider is if a one-size-fits-all approach is appropriate. The industry needs to display a little more leadership on these things.

“The difficulties in agreeing with the code and the fact that it hasn’t hit the spot with significant stakeholder groups – that is, politicians – bear talking about.”

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