Superannuation funds and their group insurers need to innovate their offerings in response to fast-changing work patterns and evolving expectations for insurance, leading industry figures say. But first, the industry needs clearer direction about what superannuation is actually for.
Answers to complex questions about the role of funds in providing healthcare, and how this fits in with the National Disability Insurance System, will help funds navigate the inherent tension between providing meaningful insurance while avoiding unnecessary erosion of retirement benefits, said a panel of experts in a roundtable discussion hosted by Investment Magazine and MetLife.
Helen Cooney, trustee director at REST, said default insurance within superannuation is a key part of Australia’s safety net and needs to be acknowledged and articulated as such. The role of super funds goes beyond investment to providing broader retirement outcomes including insurance and advice, she said.
“I think it’s important that trustees of industry super funds just be really clear that we maintain our commitment to this system that is part of the social safety net Australia has,” Cooney said.
But the picture becomes more complicated when looking at the details that come with providing insurance. Georgina Williams, employer representative director, Australian Retirement Trust (ART) – the new entity resulting from the merger of Sunsuper and QSuper earlier this year – said it is important to remember super funds are wholesale insurers who buy big group policies to protect the most vulnerable.
“We can’t disregard the fact that the extreme vast majority of people will be paying for a service that they’re not going to use,” Williams said. “So we need to be very careful about the balance that we play there, to make sure the costs are right and we are helping all of the most disadvantaged.”
Jocelyn Furlan, chair, member services committee at Aware Super, said enshrining the objective of superannuation is “the next big conversation for super, which will drive what happens with group insurance”. But this conversation will take time because it involves interlocking relationships such as how this fits in with the National Disability Insurance System.
Changes to insurance post-Covid-19
The Covid-19 pandemic, and its associated health risks, brought these issues to the foreground. Rapid changes to the way people work, particularly work-from-home arrangements, reduced claims in some areas but also raised questions about whether insurance products are keeping pace with modern work trends.
Running in parallel, changing expectations for insurance offerings have followed a wave of regulatory interventions and publicity by the Morrison government.
Wen Yi Tang, senior insurance pricing manager at AustralianSuper, said recent regulatory reforms had seen “insured members reducing drastically, and continue to reduce…to about only 46 per cent of members with insurance now”.
Cooney said REST’s reduction in insured members “would be similar” particularly with the fund’s focus on under-35 part-time and casual workers.
Michael Rooney, head of insurance at CareSuper, said around 50 per cent of members at CareSuper were currently insured, dropping from around 80 per cent before recent regulatory reforms. Death benefits had fallen as a result, he said, “so a lot more members now are dying without an insured benefit”.
The fund had seen a number of complaints go through to the Australian Financial Complaints Authority owing to members losing their default insurance owing to new regulations, and not realising this until problems came up.
“I think that’s going to get worse before it gets better,” Rooney said, as TPD claims tend to begin at least a year after an incident and therefore have a significant lag.
Like CareSuper, Aware Super had also seen a decrease in claims, Furlan said, although the fund’s research team suspected it was one of the rarer positive impacts of Covid-19. With people working from home, there were fewer workplace accidents, and the Morrison government’s JobKeeper payments had reduced financial distress.
The double impact of Covid-19 together with regulatory reforms and associated publicity had brought other changes to insurance, participants said.
Both Aware Super and ART had seen members claiming much faster than they used to, perhaps due to greater awareness about health issues. ART’s Williams said this could be due to government communication around regulatory changes to superannuation that raised awareness about insurance in super.
Mental health, long Covid and cancer
Other developments were more troubling, particularly increasing mental health claims and the potential for late-stage cancer diagnoses due to a drop off in screenings during the pandemic.
Mental health issues are the biggest moving issues for insurers, especially since Covid-19, said Aware Super’s Furlan. Internal research at Aware found mental-health-related claims made up 14 per cent of total claims in 2016, and 29.8 per cent of claims in 2021. However Aware research suggests this has been a steady increase rather than a sudden increase as a result of Covid-19, Furlan said.
People aged 18 to 44 are most at risk with mental health claims, which provides challenges for insurers accustomed to the bulk of physical illness and injury claims typically coming from older members.
Michael Mulholland, chief distribution officer at MetLife, said while there did not appear to be a post-pandemic wave of mental illness as some had predicted, Covid-19 probably affected teenagers and children more than it did adults. There could be an incoming increase in mental illness among this cohort, exacerbated by the long wait times currently required to see a therapist, he said.
Insurers can play a role here, he said, with MetLife 360 offering psychiatric services among a range of others, with a shorter waiting time. This can be integrated with the claims process to accelerate the arrival of whatever support is needed.
But there is a risk this young cohort could be left uninsured due to regulatory changes that have left a higher proportion of fund members without insurance, particularly younger members with lower balances.
One of the more difficult aspects of mental health for insurers is when it should be defined as a pre-existing condition, said ART’s Williams.
“When you start to think about neuro-diversity, there are some real issues in there around significant parts of the population and how we start to deal with that,” Williams said. “I don’t know that we’re going to land in a fair place for a little while yet.”
Aware Super’s Furlan said another concerning issue that is a direct result of the Covid-19 pandemic is a plunge in cancer screenings due to lockdowns and social restrictions.
“And so one of the, perhaps, looming events on the horizon is that there will be some cancer diagnoses that would otherwise have been picked up earlier…and that will translate into [more] total and permanent disability claims or death claims,” Furlan said.
There is a strong relationship between cancer and mental health, Furlan said, with 40 per cent of cancer patients who claim with Aware also suffering from secondary mental health issues.
On the concerns about long Covid increasing TPD or income protection claims, Furlan said it is too early to tell, but the variants to arrive after the Delta variant appeared to be less likely to result in long Covid.
MetLife’s Mulholland said the Australian government had done a good job of getting most of Australia vaccinated, which could explain the lesser incidence of long Covid seen in other countries such as the US and UK.
Regulatory reforms under the Morrison government have increased affordability limitations on default insurance in super, pushing funds to consider whether to keep their offering as a basic “stop gap” for the most vulnerable, or whether they should have a range of add-ons tailored to individual circumstances.
REST’s Cooney said conversations with members had demonstrated to her that REST members do value the fund’s insurance, relating a conversation she had with a retail worker where Cooney had asked what the worker understood superannuation to be.
“She said to me: ‘Oh, well, it’s insurance. Because if your family dies, something goes wrong, then you’ve got a little bit of help.’” Cooney said. “And that would be anathema to many within the superannuation industry, but for that member, it was absolutely true. So for her, it does give you real benefits now.”
The self-employed market is largely under-insured, Cooney said, and this demonstrates what happens when you don’t have default insurance in superannuation.
But rehabilitation and getting members back to work was proving to be a particularly challenging and complex area, participants said.
Funds were balancing affordability and value for benefits with providing a default safety net, AusSuper’s Tang said. Although AusSuper does provide a two-year default income protection benefit, its core insurance principles are to help members return to work, she said.
The language used around rehabilitation offerings is important, Tang said, in helping shift the focus away from lump sums and permanent disability to seeking the best outcome for the future.
“It’s about how do we help you get back on your feet,” Tang said.
Aware Super’s Furlan said superannuation “is not a natural fit to provide health support,” and Aware was doing a lot of work on prevention of adverse conditions, focusing on mental health, nutrition, fitness and other things.
The trend of super funds having less connection with employers made rehabilitation more challenging, Furlan said.
“As much as the fund might want to rehabilitate the member, if there’s not a willing employer who’s part of the conversation, that’s very hard to make that meaningful and satisfactory from the member’s perspective.”
ART’s Williams was more blunt about the role of insurers in rehabilitation, arguing “rehabilitation is an individual game,” there is not a natural fit here for massive funds providing services at scale, and “trying to provide at-scale services does not get a single individual back to work”.
“So, either insurers themselves need to do better and be able to provide those services in a way that is cheap and effective, or we’re going to have to work out another way around with government, I think, to do some of this work,” Williams said.
Advice a major shortfall
A major underlying issue is the advice market, CareSuper’s Rooney said. It typically costs about $6000 for a financial plan, but research shows much of the population would be willing to pay up to $600, he said.
“So there’s a clear difference between what advisors will provide to the population, and what the population really wants and needs, and it’s not being met,” Rooney said.
Insurance is typically not a product people shop for, he said, and is either sold through advisors, brokered through insurance agents, or provided through super fund defaults.
Funds already play a strong role in advocating strongly to their insurers on behalf of members to “make sure that everything within the definition of the policy that could possibly be paid, gets paid,” Williams said.
She argued funds “probably do a better job” of this than external lawyers sometimes hired by members before they make a claim, and that lawyers should not be allowed to erode member benefits this way.
Others like Rooney and Furlan also took issue with “no win, no fee” lawyers who are filling the advice gap and falsely claiming they can help members get a payout that is higher than what a benefit is worth.
Some charge $8000 for filling out a claim form, Furlan said. “I spent eight years being chair of the Superannuation Complaints Tribunal where the lawyers would lodge the claim for the benefit, and there wasn’t even a dispute,” she said. “The fund and the insurer hadn’t had a chance to consider the claim, and [the lawyer] would take a third [of the payout].”
MetLife’s Mulholland said the industry needed to better lobby the government to find a way the sector can “give really simple, tailored advice to its members at a variable cost, simply, quickly, and insure what people really want.”
Innovation and the role of insurance
Group insurers have made a lot of headway in recent years in reducing the time between the claim and the assessment of claim, reducing documentation requirements where possible, and providing more immediate services in the interim.
But CareSuper’s Rooney called for more innovation in products to meet changing societal demands. The industry still offers “the same types of insurance” as when he was working in the 1980s, when physical injuries from blue collar workers were the main risks and mental health rarely came into the conversation.
“We haven’t re-imagined what insurance should look like in the superannuation environment, to actually cater for what goes on today,” Rooney said. “We still can’t pay for rehabilitation for someone claiming a TPD benefit, we can’t help them out. It’s either: ‘You’re never going to work again;’ or: ‘You can maybe work some time in the future so you don’t get paid.’”
This is a poor outcome despite the best of intentions behind insurance legislation and product design, he said. The “either you’re in or you’re out type environment” of paying lump sums needs to change with a greater focus on rehabilitation and mental health, he said.
There needs to be a discussion about what modern insurance should look like, Rooney said, and whether the old product set is still appropriate for the 2020s, particularly with trends like working from home and the gig economy changing the way people work.