The Financial Services Council has urged the federal government to expand its oversight of group insurance arrangements with super funds.
In an unpublished submission to Treasury’s objective of superannuation consultation, seen by Investment Magazine, the FSC argues that the government commit to assessing the consumer outcomes of group insurance against the super system’s purpose.
Draft legislation released by the government last month confirmed it would push ahead with its plan to enshrine super’s objective as: “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”.
Group insurance arrangements were not explicitly referenced in the definition, despite insurance executives arguing its omission would present a “danger” to consumers. But the government did list a number of perceived benefits in the explanatory materials to the draft law.
“Access to affordable group insurance is an important benefit of the superannuation system and is consistent with the objective,” the explanatory materials stated. “Through group insurance, the superannuation system provides a safety net that delivers valuable protection to the community and meets members’ needs at reasonable cost.”
FSC chief executive Blake Briggs says the government was right to omit insurance specifically from the enshrined definition. “We know from FSC consumer research that Australians want a simple definition that has a singular focus on their retirement,” Briggs tells Investment Magazine. “For a system that manages the retirement savings of around 16 million Australians, it is critical that superannuation’s objective is commonly understood and reflects the expectations of individual Australians that superannuation is for their own retirement.”
But in its submission, the association argues these sentiments should be “clarified given recent commentary by the government that service standards need to be improved and may require regulatory reform”. It urges against a “set and forget” approach and reminded the government that the Hayne royal commission and Productivity Commission had both suggested there would be benefits to a broad review of group insurance settings.
“The FSC supports measures that ensure consumers are confident that system wide settings for group insurance arrangements continue to … deliver consistently good outcomes and align with the broader objective of superannuation,” the submission states.
Important, but not core
Minister for Financial Services Stephen Jones told the Investment Magazine Group Insurance Dialogue in July that insurance was “important … but not super’s purpose”. He warned funds and insurers to improve the quality and speed of claims handling amid reports of increased consumer complaints to the Australian Financial Complaints Authority.
“For insurance in superannuation to achieve its desired benefits, the insurance sector needs to lift its game,” Jones told the dialogue.
The Council of Australian Life Insurers, which was created in January after the nation’s largest life insurers defected from their membership of the FSC to form a standalone body, last week said the sector had heard the government’s concerns loud and clear.
“The nature of life insurance is that we’re going to be interacting people through the most difficult times and when they’re the most vulnerable,” said CALI chief executive Christine Cupitt. “We have a special level of care and responsibility that we need to demonstrate in working with customers and client and members at claim time.
“There’s always work that we can do to improve systems and processes to better support customers. And, of course, when the minister stands up and points to an area that he would like to see improvement, [the] industry takes that very seriously.”
She said the Life Insurance Code of Conduct, responsibility for which transferred from the FSC to CALI on Friday, should give the general public and partners in the superannuation and financial advice sectors comfort that insurers have made a series of commitments, including on the timeliness of claims handling, and can be held to account on that basis.
Big super funds including AustralianSuper and Australian Retirement Trust have pushed back on suggestions that a widespread review of group insurance settings was required. AustralianSuper head of insurance Richard Land told the dialogue in July that it was no longer a “compelling situation”.
“[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,” Land said. “So it’s efficient.”