Off the back of the findings and recommendations of the Hayne Royal Commission, the Productivity Commission and various regulatory reviews, considerable focus has been concentrated on the value and appropriateness of default insurance in super.
While many Australians will be fortunate enough to never have to claim on their insurance, Australia’s super system nonetheless provides a vital safety net for millions whose lives and families could be impacted in the event of sickness, injury or death. As recent research conducted by AIA Australia indicates, consumer engagement with life insurance in super is low, with nearly two-thirds (61%) of consumers classed as ‘disengaged’ and unlikely to review their insurance needs or make changes[1].
Compounding this, only eight per cent indicated that they would be willing to pay more than $1,000 for financial advice[2]. Simply put, were it not for the provision of opt-out group insurance and the role financial advisers play in helping members understand their protection needs, there are good grounds to presume many working Australians would go uninsured.
In consideration of these factors, AIA Australia firmly believes default insurance in super is the right policy setting. However, to ensure default cover continues to provide members with value and protection throughout their lifetime, trustees and insurers must provide default cover that is better fit for purpose across a broader membership and flexes with a member’s circumstances. In order to deliver this, they must strengthen their understanding of membership demographics.
One size no longer fits all
Historically, industry funds provided super and insurance designed for relatively narrow industry cohorts as many members worked in the same or related industries and have similar insurance requirements as a result. However, as industry funds opened their memberships to other employers and industries, their member bases have diversified: these days, the ‘average’ member is only representative of a minority cohort of the overall membership.
Echoing the sentiment of the Senate Economic Legislation Committee’s report, a one-size-fits-all approach is no longer appropriate.
In addressing these concerns, AIA Australia developed a whitepaper, Default insurance in super – One size does not have to fit all, exploring how default insurance cover can deliver better outcomes for today’s members. Introduced at ASFA’s Spotlight on Insurance on 27th February by Tom Gordon, AIA Australia’s Head of Product, the whitepaper proposes three default benefit design concepts trustees can adopt to provide default insurance in super that may be better suited to the circumstances of a broader cross-section of members: MyNeeds, an age-based design option; SmartCover, tailored to the individual using salary; and FlexiCover, which utilises customer data to determine appropriate insurance designs.
MyNeeds
Of the three concepts explored in the whitepaper, the first – MyNeeds – is considered the easiest for trustees and insurers to implement.
In essence, MyNeeds identifies key cohorts whose insurance needs differ to those of the average member, and designs a bundle of cover better tailored to their circumstances. When a member joins a fund they will be defaulted to the bundle of cover designed for the average member, usually based on age. MyNeeds works by being transparent with members about who the default cover was designed for: the average member. As a member’s relationship with their fund continues over time, the fund – at regular intervals and major age milestones – will remind a member of their current cover and offer alternative bundles of cover that may suit them better.
Early consumer testing indicated that the tangibility and flexibility of the concept had appeal among consumers, and that having the benefits of the cover clearly communicated gave them greater confidence in it. Crucially, the design’s flexibility means that insurance in super is more targeted and a better fit for more members. With a focus on member outcomes, designing for cohorts is critical.
Indeed, the MyNeeds concept has great potential to benefit super members, funds and insurers alike. Providing cover that is fit for purpose and able to flex with a member’s changing circumstances can drive greater relevance for members and increases the ‘value’ of the ‘protection’ offered, at the same time mitigating the selection bias that exists under an opt-in setting. Perhaps most importantly, however, designing more transparent insurance bundles could lead to increased engagement between super funds and their members, encouraging stronger engagement and brand affinity.
You can access AIA Australia’s whitepaper here.
Copyright © 2020 AIA Australia Limited (ABN 79 004 837 861 AFSL 230043). This is general information only, without taking into account factors like the objectives, financial situation, needs or personal circumstances of any individual and is not intended to be financial, legal, tax, medical, nutritional, health, fitness or other advice.
[1] AIA new insurance concepts in superannuation customer research, June 2019
[2] The Risk Advice Disconnect, Life and Investments Whitepaper, Rice Warner, March 2019.
