A recent MLC Life Insurance-sponsored Investment Magazine roundtable “Restoring trust in a post royal commission world” revealed that insurers and superannuation funds recognise that there is, at the moment, a significant trust deficit.
While committed to rebuilding that trust, following the devastating findings of the Hayne royal commission, the super funds are in the unenviable position of being forced to remove cover for a large cohort of their members.
Under the government’s “Protecting Your Super” package of reforms, account balances of less than $6,000 that have also been inactive for at least 16 months will be paid to the Australian Tax Office and consolidated with the members’ active super account.
Any life insurance purchased through a fund where a member account has been inactive for at least 16 months will be cancelled on June 30. Funds have already been contacting members with notifications that their insurance will be cancelled and giving them an option of retaining the insurance.
While the super funds are doing whatever they can with communications to members, they worry that members will ignore the opt-in notification and then find, from July, when they try to make a claim, they won’t have any cover.
The roundtable discussion revealed that participants are struggling to formulate a coherent communications strategy to deal with the problem.
Speaking of the legislation, Vicki Doyle, chief executive of the $50 billion Rest superannuation fund, conceded that as an industry, life insurers and super funds “haven’t collectively got there yet” in terms of getting the positive messages out to Australians.
On July 2, she noted, there will be, all of a sudden, a raft of people who think they have insurance who don’t have insurance, because the Protect Your Super regulations have been implemented.
“What are we going to do as an industry? Every claim that gets declined where people did not have the right information is going to be a critical challenge,” she asked. “So this is a challenge right here and now, it’s about to hit us and I can’t quite work out how we’re going to navigate that.” The danger to the super funds is that the media will pick up on some of the cases and blame the funds, causing further brand damage and trust issues.
Worse, once members are removed from the system which is based on membership members will see premiums and administration fees rise, said Adam Gee, superannuation advisory partner at KPMG.
The removal of cover has a range of unintended consequences for pooling arrangements. “We’re aware there’s already an underinsurance problem within Australia, so I just think this exacerbated it,” he argued.
“That will be a confronting conversation for the industry when everyone already thinks fees and insurance premiums are too high. So this is going to be a very difficult trust challenge for the industry.”
Yet for Ross Piper, chief executive, Christian Super, the current scrutiny of the financial services sector has presented super funds with a great opportunity to regain the public’s trust. Piper pointed out that people are generally not engaged in superannuation and now, with all of the attention it has received, is a good time to be getting important messages out to members.
Acknowledging that member engagement is the industry’s biggest challenge, Piper suggested if there is a silver lining with the royal commission it is, that at least for a nanosecond, the average Australian who reads the paper or watches the news is thinking about their money. “You can’t pay for the sort of press the finance sector has received through the banking royal commission,” he added.
The question of how well the industry engages with consumers and tells its story with authenticity was a key topic of the discussion among the high-level industry leaders who felt that, increasingly, the social licence to operate will be tested.
David Hackett, chief executive MLC Life Insurance said the industry must provide a better narrative to members. “I think we have to get better at telling our story about the good that we do for the communities, the people, and the millions of families that the industry helps.”
Hackett further noted that super and group life industries were consolidating into the serious long-term players who are committed to solving the raft of problems that plague the industry. “At the end of the day, this is an Australian story about getting the right wealth and protection solutions to Australian families. And we don’t want them to have things they don’t need, we don’t want them to have things that are too expensive and not valuable, and it’s a very complex puzzle to solve.”
Hackett listed the plethora of reforms facing the insurance industry including the Hayne royal commission and the Claims Review. “And it’s not done yet,” he added. “We’re finding our way through amid all of this change, with more to come. And with the whole new language around fairness, community expectations and conduct, the bar has lifted so we’re now playing to a much higher level.”
Qantas Super’s head of products and insurance Emma Brodie stressed that the work the funds are willing and ready to do on product design is being sidelined by regulatory imperative which, bizarrely, is going to increase this trust deficit that they’re all trying to solve.
Raft of reforms
Michael Abbott, general manager strategy at Energy Super, also noted the challenges in turning the volume of new regulations into opportunities, and hopes that “we don’t get bogged down and lose sight of the opportunities.”
While the industry is in catch-up mode with automation and technology, Financial Services Council senior policy manager Nick Kirwan observed that investments in technology were already paying off.
He cited recent statistics showing that the claims process is improving and in the great majority of cases, people get paid on time. “That’s starting to raise the bar as well.” “The timeliness at the point of claim is so important, because if you are dragging your feet the suspicion is they’re looking for a reason not to pay. That’s the suspicion.”
When the topic of claims came up, MLC Life Insurance’s head of claims, Amanda Ide, said the company has made a number of big changes to improve claims management.
Importantly, the insurer has invested heavily in process to tailor claims in a highly personal way.We focus on making the claims process as easy as possible, as quick as possible, ensuring that it’s as supportive as possible as well,” she said.
In line with this investment, the insurer has also upgraded the skill base of its claims team– with more than half coming from an allied health background. “They have the skills to communicate with our members and understand their circumstances so that we can work with them, and their treating practitioner, to help them get them back into recovery and employment in the best way possible,” Ide explained. “So it’s really about that combined approach to supporting our members so that we can also educate them around the process that they’re in as well.”
The power of data
All participants welcomed the recent release of a report by ASIC and APRA on claims handling and disputes within the sector.
The reports are an important step forward for the industry. They represent the first comprehensive effort to ensure there is credible, reliable and comparable claims and dispute data for customers and policymakers.
There was plenty of discussion about the importance of accurate data as a starting point for advocacy. “Sharing data with the medical profession and others, will be a really powerful tool for advocacy, and increase our social licence,” Kirwan noted. “They can capture the cause of declined claims and policy cancellations because of Protecting Your Super and play that back to government.”
On that topic, Berrill Watson lawyer Paul Watson said if there is a significant increase in in the people who are not getting adequate protection, then it’s an important thing for government to know. He added that group life insurance has been a very effective way of delivering insurance with a good loss ratio in that a lot of money that is paid in premiums is returned in claims.
“It has had its ups and downs … it’s had its failures but by and large it has been a very successful product.”
Phil Patterson, a senior consultant at Willis Towers Watson backed this view, adding that life insurance has immense social value particularly for default members. “The stories you want to hear are ‘Thank God I had life insurance’.”
Finally, Doyle spoke of incorrect criticisms that insurance in super is unaffordable for young people – that it was eroding superannuation balances. “Rest can show that an 18-year-old pays $50 a year,” she said, adding that $50 a year could not be called unaffordable. “A 20-year-old pays something like $110, but they pay $760 for CTP insurance. “So if we don’t have that data, then everything’s unaffordable, and everything’s eroding balances, and all young people are cross-subsidising older members, when, in fact, if you do life stage design in insurance, they’re not cross-subsidising at all.”
NAB Wealth’s head of insurance in super Peter Larsen talked about the need for better tailoring of insurance in corporate products and the benefits it continues to provide. All participants want to see all super funds and insurers sign up to the relevant codes of practice, and work to ensure that the codes have external oversight, and sanction powers.