The number of members of the $85 billion construction industry fund Cbus with insurance has increased in the four years since the introduction of legislation cutting out mandatory insurance for members under 25, in sharp contrast to the general superannuation industry experience.

Cbus head of insurance Noel Lacey tells Investment Magazine that this is a result of a concerted campaign by the fund between 2019 and 2021 to alert its members to the changes, and its application for a Dangerous Occupation Exemption for the bulk of its members.

“The Cbus experience is different to that of many other funds which are referenced in the recent report by the Association of Superannuation Funds of Australia,” he says.

“Currently, we have two per cent more members insured than there were before the introduction of the Protecting Your Super (PYS) legislation.”

A report issued by ASFA in February this year said the Protecting Your Super (PYS) and Putting Members’ Interests First (PMIF) measures have led to a substantial reduction in the number of lives insured through superannuation for death benefits.

There was a 36 per cent reduction in the number of lives insured through super from June 2018 to June 2023 and a similar decline in the number of members covered by Total and Permanent Disability insurance.

Under the changes – which were designed to stop members with low balances from having their savings eroded by insurance premiums and prevent unnecessary duplication of insurance – super fund members under 25 or with balances of less than $6,000 were no longer automatically covered by insurance in their superannuation.

ASFA argued that the changes meant there were some 5000 sets of beneficiaries who would otherwise have been covered by insurance in their superannuation but who missed out on total payments of $665 million in 2022-23.

Members warned to opt in

Lacey says Cbus has responded to the changes with a campaign to warn affected members in the construction industry – typically seen as a more dangerous occupation than most others – that they needed to “opt in” to their insurance if they still wanted cover.

 “The campaign run by Cbus to encourage our members to retain insurance cover under the PYS opt in option was very successful,” he says.

“We needed to campaign as we estimated that 25 percent of our members would lose cover under the changes.”

This was followed up by a successful move by the fund to have the bulk of its membership excluded from the changes on the grounds that they were working in a dangerous occupation.

“We then had a lot of member engagement about our dangerous occupation exemption,” he says.

“We have had strong support from members who have said thank goodness the fund did it.”

Cbus’ DOE exemption was made for its members who are considered manual workers – some 80 per cent of its total membership.

“Because of the work Cbus conducted with our members on the importance of insurance for hazardous work, following the legislative changes with PYS and PMIF, and with our DOE and following two recent mergers, we now have strong levels of insurance coverage amongst our members,” Lacey says.

Automatic cover under the exemption

He says that some 223,000 Cbus members have either retained cover or were provided with automatic cover under the exemption which is only offered by a small number of super funds.

Under the exemption, 624 claims have been paid for $78 million in insurance benefits to Cbus members or their beneficiaries in the period from April 2020 to the end of December last year.

Almost 30 per cent of these claims have been paid to teenagers and members in their twenties.

“Without the DOE, these members and their families would not have received any insurance benefits at a time when their lives have been tragically touched by serious injury or worse,” he says.

Lacey says Cbus regarded insurance as a “critical component” of its offering, given the more hazardous nature of the building and construction industry.

“We know that many Cbus members would not be able to obtain insurance cover in the retail space without significant exclusions, restrictive terms of premium loadings,” he says.

“This is as a result of the nature of the dangerous industries where many Cbus members work.”

He says issues related to health or injury are “a major driver” of early retirement for many of its members.

Highest claims from first-year members

Lacey says Cbus’s experience had shown that the highest incidence rate of insurance claims comes from people who were in the first year of membership.

He says this was because they had accidents or injuries because of inexperience in the building industry or when they started at their specific workplaces, and this showed the importance of younger members and people with low superannuation balances having insurance cover.

“Lots of people have a view that young people don’t need insurance,” he says.

“But we saw young members and members with low balances as vulnerable groups which could have been excluded from the system.”

Lacey says it takes around 14 months for a Cbus member to build up a balance of more than $6,000.

He says Cbus members are more likely than those in many other occupations to have dependents at a younger age.

“We’ve got a lot of members with dependents at an earlier age than other sectors of the community,” he says.

He says that in 60 per cent of cases of insurance payments to members between 21 and 25, death benefits are paid to a dependent.

Lacey says it is a “genuine concern” that there has been a general drop in insurance coverage through superannuation, as highlighted in the ASFA report.

“Whilst the removal of unnecessary duplicate insurance cover following the PYS can be seen as a good outcome, for those members who have insurance needs and now do not have cover at all, the consequences can be dire,” he says.

Lacey says Cbus is a strong proponent of the Dangerous Occupation Exemption (DOE).

“The government listened to what we were putting forward- that there was a need for exemption for those in dangerous occupations,” he says.

He says he is “surprised” that some other super funds had not also lobbied for a DOE for their members, and he estimated that some 20 per cent of occupations in Australia would be able to qualify for the exemptions.

“I was surprised that other funds haven’t done something about it,” he says.

Cbus uses TAL for its insurance.

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