In advocating for the passing of the Protecting Your Super and Putting Members’ Interests First bills, numerous decision-makers and thought leaders external to the industry indicated they didn’t recognise the value provided by default insurance in super.
One of the claims commonly put forward was that, as only a small percentage of super members in particular cohorts claim on their cover, the product had little to no value. But those who voiced this concern were either forgetting about, or simply unaware of, the life-changing impact that default cover can have on the types of claimants insurers see every day – for example, the 22-year-old with a mental health condition who is supported with a tailored rehabilitation and return-to-work program, or the labourer who suffers a serious back injury and will never be able to work again.
At what cost a sense of security?
If the true value of a long-term insurance product is to be realised, it’s important that its value isn’t seen to solely reside in the claims experience. Just as someone going overseas takes out travel insurance so they can enjoy their time away without worrying about what would happen if they were to meet with misfortune, life insurance provides customers peace of mind: the knowledge that they’re protected if they incur a serious injury or develop an unexpected illness.
But how can someone value this peace of mind if don’t know they’re protected? This has long been the issue with cover provided on a default basis when members aren’t engaged with it.
Increasing awareness to emphasise value
With the recent launch of APRA’s MySuper Heatmap, and APRA’s announcement that it will include insurance metrics in the next iteration it releases in 2020, the group insurance industry must prepare for enhanced regulatory interest in measuring and comparing the value of insurance in super.
Yet, as opposed to super fund investment options, which can be assessed by comparing fees and returns, it can be difficult to measure insurance using standard financial metrics.
To make clear the value of default cover, the insurance industry needs to emphasise and reiterate the myriad benefits of life insurance in super. For example:
- Breadth of cover. A large part of the value of default cover is that it provides cover to all, including those who would otherwise not qualify or be able to acquire cover on acceptable terms.
- Low costs of cover. The distribution of risk across a pool of members permits a ‘community rating’ within a fund. This allows default cover to be provided at an extremely low cost (the average weekly premium in 2018 was $4.25)[1].
- Member engagement and peace of mind. Regular engagement – either through direct communication or the use of digital tools – enables members to understand the value of their protection, equipping them to take an active role in making sure their cover continues to meet their needs.
- Efficiency of cover. In 2018, 84 cents of every dollar collected in premiums was paid back to members in claims[2]. By comparison, insurance sold directly to consumers paid out only 41 cents in every dollar[3]. Insurance sold with financial advice paid out 53 cents[4].
- Tailored wellness and return-to-work support. Insurers use the services of occupational rehabilitation consultants and allied health professionals to provide support to members on claim. Assisting a member to successfully return to work and wellness is of benefit not only to the individual, but to their family, the fund and the community at large.
- Member satisfaction. Funds and insurers should check in regularly with their members to make sure they feel like they’re getting value from their cover, even when they haven’t made a claim. Doing so offers a valuable opportunity for funds and insurers to assess their member proposition and continually evolve their product offerings.
Clearly articulating the benefits of insurance in super is crucial if the life and super industries are to continue providing value and protection to working Australians and their families.
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[1] https://www.apra.gov.au/publications/life-insurance-claims-and-disputes-statistics
[2] Ibid.
[3] Ibid.
[4] Ibid.
