Insurance continues to stay firmly in the spotlight with a swag of big policy reforms currently on the table, delegates at the CMSF conference heard on Wednesday.
As the banking royal commission found, the sector has been beset by problems over the last five years with affordability, changing terms and conditions and claims processing all needing to be addressed.
During the conference, the Cbus head of insurance complaints and compliance, Noel Lacey pointed to the royal commission report which “found a lot of bad behaviour behind complexity.”
He also reminded delegates that reform for insurance in super is critical as insurance comes at the cost of retirement savings.
This point was taken up by John Berrill, a partner at Berrill Watson who played up the positive aspects of insurance in superannuation, saying it is unique to Australia, generally very well targeted and traditionally value for money.
“I believe that the current proposals to consolidate inactive superannuation accounts and multiple accounts together with MySuper – that effectively require trustees to make sure that insurance is value for money and have a plan around that – should be allowed to work,” he argued.
The panel discussion centred on the recent package of reforms designed to protect young superannuation savers with low balances from undue erosion by fees and insurance premiums.
Legislation passed last month was supposed to prevent a situation where fund members find themselves with group life cover they weren’t necessarily aware they had, and paying premiums for it.
The Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 (the Bill) passed both Houses of Parliament on February 18, 2019.
The original proposal was life insurance opt-in for members aged under 25 years and for those with less than $6,000 in savings. But this didn’t happen.
Eleventh hour amendments
“At the eleventh hour, the Morrison government drew up amendments that dumped those provisions and in essence, the law applied only to inactive accounts, effectively undermining the legislation’s purpose,” said Berrill.
“The government has moved to try again with them by introducing a new bill which will remain in the Senate until after the election.
The Labor opposition wants to exempt workers in high-risk occupations, while the Greens and some crossbenchers want to leave the legislation as is.”
The life insurance expert pointed out that the banking royal commission was largely silent on the issue, although he conceded they did make important comments as to the value of insurance in superannuation.
Further, as he sees it, the Productivity Commission supported the inclusion of under 25’s moving to opt in but was silent on those with small accounts.
Berrill told conference goers that he supports the Productivity Commission’s recommendation that insurance in super be reviewed in four-year’s time, adding that this is appropriate, subject to other MySuper measures being in place for at least three years to properly gauge their effectiveness.
Berrill does not think that small account balances should be opt-in as this would deprive mainly disadvantaged groups from very valuable and otherwise unobtainable life and disability insurance cover for an initial periods of up to two years. During which time, he went on to say, death/disability is just as likely to strike.
Delegates also heard that following royal commission findings, the insurance specialists expect compulsory codes of practice with robust external oversight and compliance.
Regulators holding trustees accountable for insurance plans and ensuring value for money was a big issue for the panel as was introducing standard terms and conditions for insurance contracts.
The final report from the banking royal commission recommended that Treasury investigate – in consultation with the industry – whether standard terms and conditions for insurance contracts in default super were needed, as well as likely pricing effects.
“We already have a standard TPD definition for MySuper under the SIS Act however this has often been ignored/breached by trustees.”