While it is still too early to accurately assess whether stapling legislation is achieving its goal of reducing duplicate superannuation accounts, there is no doubt that progress has been made, according to Adrian Rees, general manager of the superannuation division of APRA.
Speaking in a panel discussion on insurance sustainability at Investment Magazine’s Group Insurance Dialogue earlier this month, Rees said it was a valid concern that members who change occupations may find themselves without sufficient insurance cover.
But he said it was important to remember stapling legislation was introduced due to the very large number of duplicate accounts in the system.
“There’s no doubt that the number of duplicate accounts has been reduced quite significantly,” Rees said. “And that’s got to be a benefit for members who are paying multiple fees. So I think it probably is a bit early to see what the impacts are.”
Xavier O’Halloran, director of Super Consumers Australia, said he was still waiting for the regulator to provide data that would give a clear picture of whether duplicate accounts were falling. “So, I would like to see that, but I guess some of the anecdotal evidence is that maybe it’s not having as much of an impact as people had hoped,” O’Halloran said.
Concerns remained that stapling could see members end up “stapled” to a fund with inappropriate insurance for their work arrangements, he said. But he acknowledged the legislation is still in its infancy. Stapling is still “a good news story,” he said, as the Financial Services Council and insurers had worked quickly and efficiently to develop a standard to prevent potential problems emerging out of the legislation.
On the issue of sustainability of insurance offerings, Rees said APRA sees this as closely linked to funds’ “best financial interests” obligation. It is critical members can claim for the things they are paying for, and there is a balancing act between keeping insurance premiums low and insurers making sustainable returns, he said.
“We have seen instances – hopefully more in the past now – where benefits have been designed in a way and priced into products, yet many of the members cannot claim for those benefits under that insurance,” Rees said.
Insurers should “make a reasonable return” so they don’t run into trouble during difficult market conditions, he said. “The sort of conditions we had a decade ago, where many of them were unavailable to quote for business, was not a good outcome and, indeed, it also ultimately led to very large premium increases subsequent to that,” Rees said.
Also on the panel was Peter Kohlhagen, general manager of APRA’s insurance division. Kohlhagen said “the scars of that cycle [were] burned into all of us” in the group insurance space, and APRA was keen to prevent the behaviours that led to a “roller coaster ride of premiums” as conditions change.
But it isn’t just the insurers that are at fault, with some issues coming from the funds, Kohlhagen said. Key issues insurers raised were about the availability of good quality data from funds to allow for sustainable design of products and good quality reserving, along with issues in the tender process around compressed time frames and delays in providing data.
Since the letter came out, industry feedback had been mixed, Kohlhagen said. While there had been positive reports about tender practices properly assessing the value of insurance cover, anecdotal evidence suggested some funds were too focused on price. Similarly, there was room for improvement on the speed in which funds provide data to insurers and the quality of data provided.
O’Halloran said it was a positive development that the interpretation of the concept of sustainability had been widened from just profitability and premiums. Sustainability should be ultimately about a nuanced understanding of outcomes for members, he said.
Consumers are not sufficiently engaged with insurance to drive market dynamics toward a solid balance between product offering and consumer demand, he said.
“I think as a result it’s up to industry experts to try and define what this product is,” he said.
Panel chair David Bell, executive director of The Conexus Institute, questioned whether an industry-wide solution could be found.
O’Halloran replied he was in the camp that believed “there needs to be a broader review that looks at what consumers can reasonably expect from these types of policies; what government thinks this market is designed to deliver; and then leave it also up to insurers and superannuation funds to, you know, do what they’re good at in designing a product that kind of meets those overarching goals for the system”.
“A strong default cover would prevent, for example, carve-outs for certain groups of workers such as those working less than 15 hours a week – casuals and part-timers are a substantial cohort that makes up around 18 per cent of the population, O’Halloran said.”
On the issue of standardising industry data and whether this could also be applied to the area of insurance, Rees said APRA had long been considering a “heat-map metric around insurance” but it had “proven to be very difficult” to compare cost and quality in a standardised way.
“Even the ratings houses would admit that what they do, while it’s good, is imperfect,” Rees said. “So at the moment we’ve sort of put that on hold and maybe we’ll talk to industry more about what could we usefully do, because we’re sort of sitting there scratching our heads a bit.”