AustralianSuper and Australian Retirement Trust, the nation’s two most prominent trustees, have dismissed the necessity of a sweeping government review of insurance within superannuation.
The review, recommended by the Productivity Commission in 2019, would assess the costs and benefits of group insurance arrangements, including whether an opt-out model would be preferable.
But AustralianSuper head of insurance Richard Land said that a broad national review is no longer a “compelling situation”.
Super insurance arrangements are part of a “broad patchwork of benefit schemes” that has several benefits to members, he told the Investment Magazine Group Insurance Dialogue in Sydney earlier this month.
“[Group insurance] pays $5-6 billion in terms of claims a year [and] returns about 80 cents in the premium dollar by way of claims,” he said. “So it’s efficient.”
Landed added that many of the problems the Productivity Commission found – including concerns around the erosion of balances – have been significantly cleaned up by subsequent legislation, especially the previous government’s Protecting Your Super laws.
“In my view, [insurance] plays a really important role in the overall patchwork of benefit compensation schemes. It’s self-funded, so it takes pressure off [the government]. So, I don’t see [an inquiry] as absolutely compelling.”
The comments come as data released by the Australian Financial Complaints Authority on Thursday night showed insurance claims handling complaints by policyholders surged 76 per cent in FY23. Superannuation complaints rose by 32 per cent overall, but there was a 136 per cent rise in complaints about group insurance claim delays, including the payment of death benefits.
Penny Pare, senior insurance manager at Australian Retirement Trust, said industry participants have proved they can come together to solve challenges in the past, referring to the Insurance in Super Working Group, an initiative of the Financial Services Council.
“We made some really good advances there,” Pare said. “We’ve had a very busy couple of years [after setting it up], but it’s probably a good time to reconsider something like that.”
Claims handling conundrum
Minister for Financial Services Stephen Jones told the Dialogue that the government will focus on addressing claims handling issues, due to the record number of complaints that have flooded AFCA in the last 12 months.
Zurich head of partnerships John Mirotsos stated that all regulated entities “have a responsibility to solve problems” related to the claims handling process.
“A lot of these claims handling processes have been built by people in the business who know and understand the business,” he said.
“But if you were to take an individual member off the street and walk them through that journey, this is where the anxiety, the frustration, and the stress begins, because you’re forcing them down a path at their worst time. [It is] fundamentally a process that needs to be overhauled, and we accept that.”
The general manager of APRA’s insurance division, Peter Kohlhagen, said businesses should not wait for regulators to tell them they need to improve claims handling processes.
“[Updating them] makes sense from a business perspective and [it is] just part of good hygiene,” he said.
Shape up or face legal action
Jones said the government is prepared to take legal or regulatory enforcement action if trustees do not improve their communication and engagement with members.
The warning came after a joint review by APRA and ASIC revealed that many trustees are not adequately helping members prepare for retirement, failing to meet legal obligations.
The minister also highlighted the need for insurers to offer products that are fit for purpose and cater to consumer needs, especially in group insurance arrangements.
Zurich’s Mirotsos said better collaboration and supply of data between stakeholders would aid better claims handling and member engagement.
“Rich information will give us more tactical decisions to make,” he said.
“Having individuals be more empowered, guided, supported, assisted in the value of insurance within their superannuation program is really what we should be aspiring to.”
Kohlhagen said he is encouraged by the direction of the insurance industry.
“There’s been really good practical discussions. I think about some of these challenges with TPG and the identification of barriers people are talking about.”
“[But] to echo Stephen Jones’ points, that is not an excuse to do nothing now,” he said.
