With superannuation members now ‘stapled’ to one fund even when they change jobs, funds are developing data and engagement strategies to ensure members have appropriate cover–particularly those in risky occupations–and that it is priced fairly.
But achieving greater member interest in a compulsory and largely automatic benefit is no simple task, participants said in the fourth of a series of digital roundtables held by Investment Magazine and sponsored by MetLife, which dealt with recent regulatory changes facing the industry.
David Bell, executive director at the Conexus Institute–an independent research institute focussed on improving Australia’s retirement system–said shifting towards an engagement-driven model would have its own winners and losers, with the losers being the “heavily disengaged” who will be left in poorer performing products that may leave them inadequately covered.
Noel Lacey, head of insurance pricing and relationships at Cbus, said he was concerned the industry is moving towards a retail model of member election and opting-in for cover, and away from a group model with widespread benefits flowing from the pooling of funds. The challenge for the industry was to retain the clear benefits of a group model for members.
“We are heading, I suppose in our view, in the wrong direction and there certainly I think will be groups–and it will typically be the disadvantaged groups–that will be the losers out of some of the changes,” Lacey said.
People working in hazardous occupations and environments may unwittingly have exclusions in their insurance leaving dangerous gaps in their cover, Lacey said. Vulnerable people will include those who don’t speak English, those who are financially struggling, or those who aren’t financially literate. These people may change jobs, lose important cover and not find out until claim time.
But Richard Land, head of insurance product and pricing at Australian Super, was a lot more sanguine. Land said he was “relatively contented” about the regulatory changes and saw it as “more of an evolution rather than any major change.”
Avoiding eroding account balances and eliminating multiple accounts were good foundations in the policymaking, he said, and stemmed from the Productivity Commission and community expectations.
Member engagement is on the increase, he said, with members much more engaged now than just two or three years ago. And group insurance isn’t under threat, he said.
“From our fund’s point of view, we have a product which doesn’t have any occupational exclusions and ease of obtaining cover if they need it,” Land said. “So as I said, I’m a relatively contented cat.”
Engagement and choice is key
Participants largely agreed that making the best of the new regime would involve retaining strong default insurance arrangements as a general safety net, while having personalised options for those who want to engage and tailor their insurance to better suit their needs.
Engagement–an issue that the superannuation industry has grappled with for years–remains the proverbial “holy grail”, said Chesne Stafford, chief customer and marketing officer at MetLife Australia. But the industry still has a lot to figure out, she said.
“I think you can get the design right, and that then has pricing implications or changes,” Stafford said. “But then how do you actually facilitate between those in an experience that customers will find they’re able to navigate?”
Joshua Van Gestel, national education manager at Sunsuper, has been squarely in the middle of educating employees about what the new legislation means for the industry. He said some employers will take the initiative to drive greater engagement from their employees as part of their talent attraction and retainment strategies. They will push for insurance being a negotiated, tailored benefit as part of a strong benefits package for employees.
Van Gestel also pointed to the Australian Prudential Regulation Authority’s performance test as driving engagement in a way the industry hasn’t seen in a long time.
“When was the last time you saw superannuation funds put on the front page of the Daily Telegraph?” he asked. “So, I think there was probably an element of people who had never thought about their super, who were maybe touched to think about it.”
The challenge now it for funds to do better at targeted engagement by honing their data and insights, with the help of their insurance partners.
“I think we’ve got this great opportunity where people are taking interest–even if it’s only when the performance test comes out–but how is it at that point that we also engage them with the performance of insurance, to consider the cost of insurance [and] to consider…is it time for them to review the stapled fund that they’ve been with for years?”
Meray El-Khoury, chief insurance officer at MetLife and an actuary, said members’ interest will be piqued if they receive a letter saying their fund is underperforming, but there is a risk they will make a decision to switch funds based on performance and fees alone. Comparing insurance offerings is much harder to get right, she said.
“They either may not get default cover because they’ve joined outside of an eligibility period, or there could be pre-existing condition exclusions,” El-Khoury said. “Looking at insurance is a second order effect possibly for these people, and they may end up with even no cover, or limited cover, and forgetting that they need to take action such as rolling over, providing evidence that they had cover in their previous funds to their new fund.”
While there is a reduced onus on employers to nominate a default fund, employers still have a duty of care to point employees in the right direction, by suggesting they speak to the fund to ensure they have the right cover, she said.
Insurance design in a post-stapling world
The shift towards greater consumer engagement will require funds to have insurance that is flexible and adaptive to individuals–particularly large funds who serve a wide range of member cohorts who will stay with the fund while progressing in their careers and, in some cases, moving between industries.
Phil Patterson, senior consultant at Willis Towers Watson, said this would mean creating more occupational categories so it can be priced more closely to the individual, for those who wish to engage on this. But default cover will need to be “as universal as we can get it to be” to protect disengaged members, he said.
“I think you have to have a default safety net piece, it needs to be universal,” Patterson said. “But then almost at the other end of the spectrum, we’ve got this…targeted marketing for the engaged, which will become much more personal.”
It is “naive to think” that there won’t eventually be a performance test or some kind of benchmarking for insurance prices to allow meaningful comparisons for engaged members, he said.
But funds will need to be careful to avoid a “price spiral” where rising prices cause engaged members to opt out, leading to further price rises, he said.
Sean Marteene, chief transformation officer at LGIA Super, which just completed a merger with Energy Super, concurred there is an opportunity to design insurance products for specific market segments, and argued there will be opportunities for competitive industry players to step in when others are falling short.
“Let’s say there’s deteriorations in the terms and conditions, and that creates opportunities [to] actually create things specific for that target market in that cohort…and [for member] acquisition, particularly for those that have probably been very heavily reliant on the workplace default channels for member growth.”
But Land described just how difficult engagement can be–even when engagement delivers obvious savings to members. Funds often don’t know a member’s occupation, and when members are asked to provide it voluntarily, they often decline–even in situations where it could make their insurance more expensive.
“We have…insurance guides saying ‘your category is the most expensive,’ we actually say those words,” Land said. Even after informing members they could apply for a work rating change which could lead to 50 per cent cheaper premiums, many still don’t change their work occupation, Land said.
The enormous difficulty of achieving member engagement is leading funds to develop their data-gleaning processes, developing insights that can help them better tailor insurance for apathetic members. But currently there are regulatory obstacles to getting this right.
Industry regulators have a growing focus on mis-priced insurance, Land said, but lacking the ability to collect occupation data from government agencies forces funds to default members into a standard category which may not be the best fit.
“Naturally ASIC has a big issue with it, and it’s a big, big problem, but it’s just so hard, it’s so hard to do,” Land said. “If we had occupation as a feed from the ATO or a compulsory field on SuperStream, that entire issue would just go away.”
Salary is another data point that would be helpful for income protection benefits but that funds can’t collect, Land said, and regulators making this information available would solve the problem.
“You get $36,000 per annum, whether your salary is 20K or whether your salary is 200K, and either of those is not a great outcome,” Land said.
One of the big risks with inadequate data is when funds are tendering for group insurance contracts, Land said, where funds don’t have enough claims data to price premiums appropriately, and the insurer “just wants to get the business and then they feel…they can deal with it afterwards.”
Sean Marteene said data points like salary and occupation would not just be useful for insurance, but also the designing of retirement products and investment options.
“We’re making good inroads but having some of that…occupation data and understanding family unit structure that we actually could get through the ATO or government agencies, would just be incredibly valuable for us and generating better outcomes for members,” he said.
Funds also have a role to play with data in filling the advice gap in middle-income Australia, said Michael Mulholland, chief distribution officer at MetLife Australia. Advice “has been really hollowed out” as advisors have found it too hard to make a profitable living in the middle-income world of retail insurance, so they have shifted their focus to wealthier individuals.
“There’s no doubt in my mind that the advice side is really hurting, and it is causing immense pain within the blue collar and working sort of middle Australia,” Mulholland said. “And that will inevitably lead to, I think down the track, to under-insurance and a burgeoning Centrelink issue over the next 10, 20 years.”
Members in at-risk occupations need to be able to easily move between companies without any unintended consequences regarding their insurance, Mulholland said, and advisors are not going to be able to assist with this until legislation makes it easier to quote and apply for insurance without “weeks of SOA construction and an excessive cost at the moment.”
Bell agreed that the solution to this middle-Australia advice gap is probably in “mass delivery type solutions” which he said are difficult for funds to provide under the current legal and regulatory settings.
Promising initiatives in engagement
Without waiting for regulatory change, there are promising avenues funds can pursue to push their members towards greater engagement.
El-Khoury said funds could anticipate different behaviours from individuals who opt into a fund, compared with those who join by default in their first job, and then target their approach differently.
Members who have proactively opted into a fund are “naturally a more engaged individual, because they’ve made an active choice to join you,” El-Khoury said. “So you’ve got this individual who is probably more open to being taken on a journey than what you would have had in the past.”
Sunsuper, where El-Khoury used to work, had done this well, she said, by curating a journey for new starters. This could involve focusing on a single investment decision this month, then engaging on member benefits a month later, followed by a focus on insurance the month after. It’s important not to “dump everything on them at once and overwhelm them,” she said.
Marteene said there are “massive drop-offs” in engagement if funds overload members with too much information, even at application stage. It is important for funds not to bundle insurance concepts with other materials such as annual member statements as there is a limit to how much members will typically engage with at one time.
Lacey said the concept of “trigger events” is a good area of focus for the industry to campaign for greater education and engagement. These are things that happen in someone’s life, or perhaps the life of a friend, that cause a person to become more engaged with insurance.
At the heart of it all is to make interaction with the fund as frictionless as possible, said Phil Fraser, CEO of QInsure, QSuper’s insurance company. The technology is already available for this, he said, pointing to banks giving people the ability to easily transfer their home loans by themselves doing the legwork in obtaining data through open banking or the ATO, and allowing the customer to easily transfer a loan with a few simple, paperless steps.
“Some of the solutions are just the simplest things,” Fraser said. “It’s just take the friction out the process, simplify it and then bring external data feeds in wherever possible to allow the customer to move through simply.”