The viability of group life insurance was firmly in the spotlight at a recent conference with insurers launching a stinging attack on the impending regulatory changes which threaten to reduce cover for vulnerable Australians.
The Putting Members’ Interests First Bill requires super funds to offer life insurance on an opt-in, rather than opt-out basis, to members under the age of 25 or with super account balances less than $6,000.
AIA Insurance chief Damien Mu warned that Australia was in danger of creating an “insurance underclass” of workers who will find it hard to get coverage.
“This is not about saying people should have cover under 25 years of age or must have cover under 6,000,’ he said in an emotionally-charged speech delivered at Investment Magazine’s Group Insurance Summit held in Sydney on Tuesday. “It is about recognising what the royal commission highlighted which was that trustees are best-placed to understand members’ needs. They have a fiduciary duty to act in the best interest of their members, he continued, so, let them decide whether or not their members need insurance.”Don’t legislate to take it away from them.”
In the last 12 months, he pointed out the industry has come under severe attack through constant reviews. The AIA Insurance chief is not denying that some of these were warranted. “We could have done a lot of things better. As an industry, we should be tested but at the same time, the industry has been very pro-active.”
“It’s great that Australia is a leader in superannuation but let’s not be a leader by taking the most efficient life insurance system in the world and breaking it.”
During a panel discussion, TAL chief executive Brett Clark, reminded delegates that group insurance is being incorrectly identified as a cost. “Life insurance is essential to the purpose of super which is to ensure the all individuals have a dignified retirement, and if we come back to that singular purpose, we can better shape policy,” he said.
Clark pointed out the whole system is built on the principle of pooling. He stressed that group insurance is a community benefit, not a savings product. Talking about insurance as a cost he went on to say, fundamentally ignores the fact that insurance is about sharing risk so that people who are fortunate can look after those who are not.
Further, the TAL head argued that the current conversation has focussed too much on the cross subsidising of members. “That’s what life insurance is about,” he added.. “It’s the biggest cross subsidy in town. If you don’t like the idea, you’re not a fan of insurance.”
That said, Clark is against extreme cross subsidies since a diverse range of lives inside the pool makes it economic for everyone.
Commenting on the new legislation, Clark said an unintended and unfortunate consequence of members leaving the system is that will lead to a price rise for everyone else who remains.
“Without a diverse pool, it becomes harder to offer access and affordable cover.” he said, adding that the big issue is how to calculate the right level of pricing across the whole cohort as people make more individual choices.
Paul Schroder, group executive of AustralianSuper conceded that “we are on a path to degroup group insurance” but warned that care must be taken not to create other problems as a result.
“One unintended consequence is that while the Bill has caused a lot of trauma, the level of engagement with this topic is really high and that has given us the opportunity to talk about insurance to members.”