The disconnect between what super fund members expect their insurance to be covering, and what it actually does cover, is putting some members at risk, according to Xavier O’Halloran, Director of Super Consumers Australia.

Greater innovation is needed in the terms of insurance cover to deal with hazardous occupations in particular, O’Halloran said, to prevent the terrible outcome of a member discovering he or she is not covered after suffering a debilitating injury or illness.

Xavier O’Halloran 

O’Halloran told the story of a truck driver who suffered a stroke and lost the ability to dress himself, along with his peripheral vision which was crucial to his job. Looking into his insurance cover, he discovered he was in an excluded occupation meaning he had to pass a specific daily living test. This test found he could still feed himself and walk, among other things, and was therefore ineligible to make a claim.

“So he’s in his own words he thought insurance was a scam like he’d been paying for years for this cover, he thought he’d agreed to be covered for this kind of thing in his policy and it was a pretty fair assumption I think that he’s been paying for the cover for so many years that he might get a payout,” O’Halloran said, speaking at Investment Magazine’s Group Insurance Summit.

“But as people, at this Summit will know, this is a term that is, and has been, pretty common particularly around higher risk occupations,” he said.

The daily living test is also “almost perfectly designed to stop someone with a mental health claim from being able to successfully claim,” O’Halloran said, calling for these kinds of tests to be ended.

The Financial Services Council has acknowledged this problem and is creating a standard that will prevent member funds and insurers from charging members for cover that they can’t claim on. This is a good initiative but it risks superannuation funds increasingly taking up the option to carve out people in certain occupations at the time of signup, making insurance cover for these people more expensive and making cover generally less universal.

“The default aspect of [insurance in superannuation] was always really important because I think it’s commonly recognised that without some kind of basic level of protection that people get already, they wouldn’t actively go out and seek this type of cover,” O’Halloran said.

“But it gets very complicated once you start providing it with the superannuation system because, you know, super’s main function is really saving for retirement, and you’re effectively smashing two products together.”

Misunderstanding of the specifics of insurance cover in superannuation is widespread, O’Halloran said, and this demands a re-think and ultimately a common understanding of what insurance in superannuation is there to do. A Productivity Commission review into the purpose of insurance in superannuation would help with this, he said.

Studies have shown, for example, that generally a person’s ability to compare good and bad products is largely gone once you go beyond two or three factors of comparison. Insurance policies–particularly when bundled into a superannuation product with its own set of attributes–are complex beasts to compare.

The industry has a strong role to play in looking at product simplification and building a more common and universal use of terms, O’Halloran said, pointing to how consumer understandings of “income protection” can differ greatly to what it actually means in practice.

The Australian Prudential Regulation Authority’s member outcomes assessment is a good reform in this direction, forcing funds to ensure their products are properly designed for their membership, he said. But it was disappointing that only about one third of funds spoke about more than one metric to do with their insurance, and only about 20 per cent of funds made some kind of commitment to improve their insurance offering.

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