Simon Hoyle, Jenni Baxter, Craig Harrison and Renee Voutt at the Group Insurance Dialogue 2023.

The default status of insurance in super could be at risk if insurers and trustees can’t collectively improve the design and delivery of insurance for super fund members, delegates to the Investment Magazine Group Insurance Dialogue concluded. 

Reporting the results of table discussions on insurance innovation among delegates at the event, held last month in Sydney, CFS director of insurance Craig Harrison said delegates believed that if TPD insurance in particular isn’t addressed, “the obvious risk there is that something happens that actually changes the default nature of insurance, and that is taken away”. 

Harrison said the industry had long recognised that the TPD benefit design “isn’t quite fit for purpose”. He said it was clear from the delegates’ discussions that “an income-style of payment probably makes more sense in this space and might be more intuitively aligned with what the member is actually looking for and would naturally expect at that point in time”. 

“But then we quickly get into the blockers and the inhibitors around premium affordability and [fund balance] erosion,” Harrison said. 

“So should it be an IP design in the future versus a TPD design? The answer seemed to be coming back from each of the tables that actually it’s probably neither of those; it’s probably actually a combination or some type of hybrid of both, that it should have the flexibility of being able to adjust for the individual member’s claim or circumstances clearly.” 

Harrison said the underlying premise of the tables’ proposed changes was that insurance should deliver “some type of like income-like payment or support payment, that would then focus in on the rehab and recovery and getting people back to contributing to earning an income and contributing back into their, their super so that they’re building that that retirement outcome for the future”. 

Harrison said the table discussions also focused on a reluctance among super funds to be the first mover “because we don’t necessarily want to be the, you know, the one fund that’s out there doing something different to everybody else in the regulatory and the government pressure that comes from that”.  

Not as much change as expected 

Introducing the topic for discussion, Harrison said it was noteworthy that despite the industry recognising the shortcomings of default super for many fund members, “we are really surprisingly probably not seeing the amount of change and innovation that all of that dialogue and all that consensus over the years would have otherwise led to”. 

“I feel that hearing the Minister [for Financial Services Stephen Jones] speak this morning, the piece around TPD claims and the complaints that are coming through the system off the back of that, it’s really important for industry to solve this as well, so that we can continue to rely on that government and community support for the default insurance in the super system,” he said. 

“If we rely on government, or we rely on regulators, we just don’t know what the outcome of that intervention will be. It’d be much better if as an industry, we’re able to able to tackle it together.” 

The Dialogue also heard that engaging members better, so they understand the role and function of insurance, is an important in improving member outcomes. 

MetLife head of group product Renee Voutt said the table discussions demonstrated that “[member] engagement is actually one of the puzzle pieces”. 

“We had a lot of discussion around premiums and how the product should be designed around premiums, and members actually [having] more choice around the level and the amount of cover they pay, whether they can flex it as well, at point of claim,” Voutt said. 

Voutt said the conversation also traversed the conflicts fund trustees face in lifting member engagement, which tends also to raise costs, and the need to keep costs under control to deliver optimal retirement outcomes. 

“And we had another really interesting conversation around the use of employers, and how we can get the employers, who are the closest to most of our members, to actually engage with them, after maybe a compulsory period of sick leave,” she said. 

“And that could actually be legislated as well, so employers have a bit more skin in the game to help superannuation funds and insurers work with their members to, one, not just get them back to work at claim time, but also through wellbeing programs.” 

Addressing mental health at claims time 

Voutt said delegates also considered the benefits of introducing mental health support programs as part of managing claims and helping members back to work. 

Deloitte Consulting partner Jenni Baxter said a theme around the treatment of mental health emerged from the table discissions, “and the theme is saying: lump sum [payment is] not really a good idea, some form of continual payment [is] a much better idea for mental illness claims”. 

“[The discussions] didn’t focus too much on the on all the shortcomings, because we’ve gone through a lot of them already,” Baxter said. 

“So, the lump sum, why we don’t like it is [because] it’s a misaligned motivation to return to work. Also, a misaligned motivation to get better.  

“And the uncertainty of that payment heightens anxiety, especially because it’s over a long period of time. 

“There was a comment that TPD was never designed for mental illness; it doesn’t work at all. And now most of the claims coming through are mental illness claims. There’s a problem determining permanency of mental illness claims – I mean, it really does make you think that this this is entirely a mismatch of product and need.” 

Earlier, the Dialogue had heard that the insurance industry needs to evolve into a service business and cease being such a product business. Baxter said the table discussions considered how the industry could “help somebody with this illness to navigate all the options that might be available to them, not just their insurance, but WorkCover and different benefits?” 

She said the discussion considered whether everybody who has a IP claim or TPD claim ought also to automatically receive a mental health care plan. 

“Rehab services are really, really important,” Baxter said. “But not everybody wants them. The timing’s got to be right. It’s a bit like giving up smoking or going on a diet. It’s got to be the right moment for you to go, ‘Yep, I’m going to accept this and I’m going to make it work’.” 

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