Australia’s insurers need to stay the course and not lose heart in the face of constant tinkering with the policy settings for superannuation, since the insurance business makes a real difference to people’s lives and we should remember that, says Martin Fahy, ASFA chief executive, ahead of Investment Magazine’s Group Insurance Summit to be held in Sydney on 13 August.
At the Summit, he will paint a picture of an intensely competitive industry – one that meets its prudential capital requirements, prices efficiently and pays out claims every day of the week.
“I don’t think we should lose track of that in the face of anecdotal media barrages about junk insurance and zombie insurance,” he says. “That is not to say we can’t do better, but I think it’s wrong to say the system is broken.”
Fahy will argue the debate on group insurance has, to some extent, been contaminated by the issue of duplicate accounts. He points out that the Protect Your Super legislation is dealing with that by removing default group cover for inactive accounts.
“Removing duplicate accounts will lead to a very effective offering,” he will tell conference goers. “That said, it doesn’t mean we don’t need to recalibrate insurance in super going forward. I think we do.”
Fahy concedes that the PYS reforms did present a big challenge for group insurance but he noted the energy with the super funds and insurers reached out to members.
In the run-up to the introduction of the reform, the Association of Superannuation Funds of Australia ran a public awareness campaign with a number of asset owners, insurers and fund trustees – as well as with the Financial Services Council – called “When did you last check your super?”
Fahy calls it a “very effective” campaign and argues the data will reveal quite an increase in the projected opt-in for inactive accounts.
At the conference, he will outline the benefits of incorporating insurance as a default requirement for super. “For a start, Australia doesn’t have the under-insurance issues that plague most countries. Around 70 per cent of Aussies have life insurance, 50 per cent get TPD and roughly 50 per cent have income protection.”
However, more legislation is on the way. Canberra moved swiftly to reintroduce the Putting Members’ Interests First Bill. Under the Bill, default cover can only be offered to members under age 25 – and to those holding low-balance active accounts of under $6,000 on an opt-in basis – from 1 October 2019.
ASFA has concerns about the new Bill. In Fahy’s view, the cut-off age for op-in default cover should be 21 years, not 25 years.
Also, he warns, young workers in hazardous occupations could be left without cover as could people changing employment who might have less than $6000 for a period of time.
As he sees it, the almost ubiquitous level of change in the tax settings and the numerous reviews that have impacted super in the last ten years underline a very busy change program. “This compromises the integrity of the processes and systems at the back end and makes it difficult to execute flawlessly on member engagement.”
Plus, he states, it swells the overall cost of running the system.
“Add in the increased regulatory scrutiny and the large amount of time dealing with compliance when there is no real evidence to suggest there are systemic problems in the industry,” he says.
“As a sector, group insurance struggles to achieve margin despite having just a handful of well capitalised major players who compete very competitively for the mandates that come up.
“The level of innovation we have seen has been restricted in part by pricing challenges but also by the regulatory landscape and the reluctance of regulators to entertain innovation.”
The Group Insurance Summit will be held at the Four Seasons, Sydney on Tuesday, August 13. Be sure to register here.