A Senate inquiry into insurance in superannuation, and the extension of its reporting deadline to 30 June 2025, presents a valuable opportunity for the industry to proactively address challenges in TPD insurance and improve member outcomes, and sets a timeline for industry to demonstrate improvement ahead of government considering its role.
The Road To Reform on Disability Insurance roundtable, sponsored by MLC Life Insurance, heard that the Senate inquiry’s terms of reference and new reporting deadline provide the industry with both a task list and a timeline.
MLC Life Insurance head of group product and proposition, Alison Bodinnar, said the industry should use this time to collaborate with policymakers and stakeholders. A collaborative approach would allow the industry to develop solutions that effectively address TPD insurance challenges and improve member outcomes before any potential government intervention.
“It presents a great opportunity for the industry and for members,” she said.
“We’ve got a timeline now and I think we can really demonstrate that there are ways in which we can actually solve some of these challenges facing members today.”
Bodinnar said product development should be data-led and that insurers need to work closely with fund trustees to design the optimum product for members.
“We also think that it’s really important that we actually speak to members through consumer research to add that human element and to truly understand what member’s expectations and needs are,” she said.
Many issues plaguing the disability insurance market are multi-faceted. They stem in part from the fact that definitions of total and permanent disability have not changed in 30 or 40 years, but the nature of underlying causes of disability has.
For example, mental health issues now constitute about one in three TPD claims, the roundtable heard, whereas three or four decades ago, such claims barely existed, if at all.
Bodinnar said, “there’s definitely a need for us to keep up with the times and adapt to account for the changing nature of work and disability”.
But there’s also a lack of awareness among fund members that they potentially have TPD cover, what it is, and how to claim it. MLC Life Insurance research suggests around half of all Australians have less than three months of savings to fall back on should they be permanently disabled and unable to work.
Women are 56 per cent more likely to fall into the bracket of having no more than one month’s savings. It often takes years for members to lodge their TPD claims, which means they may not be getting the support they need when they need it.
A preference for income streams
MLC Life Insurance’s research suggests many fund members’ preference is to be provided with an income stream style benefit, because it gives them greater peace of mind about being able to meet living costs.
Bodinnar said a combined TPD and income stream style benefit could give members greater peace of mind and more flexible support.
“There’s no question that the system today serves as a critical lifeline to members,” she said.
“We definitely don’t want to be moving away from that; we want to acknowledge that it’s certainly a system that provides much value and enables people to live a life that they would not otherwise be able to in the event that they have a severe disability. Giving trustees the flexibility to design the most appropriate products for their members should be the first step towards this.”
Council of Australian Life Insurers (CALI) chief executive officer Christine Cupitt said the current Senate inquiry into improving consumer experiences, choices, and outcomes in Australia’s retirement system should focus primarily on “the role of insurance in promoting retirement outcomes and supporting retirement income streams and potentially aged care in the future”.
“We go back to first principles around what the role of life insurance is, and that is really to provide people with peace of mind so that they can live in a healthy, confident and secure way,” Cupitt said.
“To do that means continually looking to evolving consumer preferences and changing the way that we work, as well as looking at particular disability needs.”
Cupitt said the industry paid $3.5 billion in TPD claims last year (FY23), around 20 to 25 per cent of which related to mental health. She said more than three-quarters of TPD claims were finalised within six months.
“There’s a lot that’s working well, and we need to continue to bring ourselves back to that,” she said.
But the “where to from here” question needs to reflect “the changing nature of work, the changing nature of illness and rehabilitation, and coming back to that shared purpose of providing people with protection and certainty so that they can live their best lives”, she said.
Adjusting products to work better
The question around insurance in super is less about whether it has value to members – it does – and more about how products can be adjusted to work better as the way we respond to disability evolves.
“What that looks like – whether it’s a lump sum or an income stream or a combination of both – is I think the big challenge that we as an industry are all working through,” ART senior manager, insurance, Penny Pare said.
But as products evolve and the objective of insurance increasingly incorporates an element of getting people back to work and addressing broader wellness issues, the mindset of other parties within the health and insurance ecosystem must also change.
“One of the biggest challenges we face is the mindset around ‘permanency’,” Pare said.
“If a person has been told for years that they’re permanently disabled, then having conversations with them about wellness programs and rehabilitation options is really challenging; and doctors find it really difficult to actually say that their patient is permanently disabled.”
Pare said analysis of individuals who’ve claimed on their TPD insurance shows that around one in five members had returned to work, and “then there were a number of members who were actively looking for work, or in the process of wanting to look for work”.
“When we spoke to members asking them what they’d like from an insurance benefit, some kind of income replacement was preferred,” she said.
“Income protection is not something we provide as a default, but members can opt into. “Members told us – of those members that have returned to work or responded to the survey – that they would have appreciated support around things like learning to return to work and learning to apply for jobs.”
Different funds, different reform priorities
The point of reforming insurance in super is to make it work better for members, but the varying characteristics of members from fund to fund mean different funds have different reform priorities. HESTA chief strategy officer Sam Harris said around 80 per cent of HESTA’s members work in health and community services.
“They can typically be off work for musculoskeletal-type issues, which means they’re not going to be able to work [and are] relatively low paid,” Harris said.
“So, our philosophy is how do we help people get back to work? How do we provide that safety net for them, whilst they are going to be out of the workforce for a period of time?”
Any reforms to product design also need to recognise that, generally speaking, “financial services products are not designed for women”, Harris said.
“We need to understand and recognise our role in addressing that there are systemic inequities embedded all throughout a woman’s working life, whether that is the gender pay gap, whether that is time out of the workforce, whether that’s not recognising the value of unpaid care.
“So, as a fund, we advocate for these issues that impact our members’ financial futures, and to think about where we can play a role in advocating to change these systemic inequities.”
Harris said HESTA is expecting, like many in the industry, to see an uptick in mental health claims under TPD cover.
“We’re starting to see some early signals through WorkCover data that’s going to come to us very shortly,” he said.
“So we ensure that our coverage is very accessible. If you do come to us and say I’m unable to work due to my mental health, we’re making it as straightforward as possible to claim, supporting the member through that process and paying claims as soon as possible. So, we’re doing everything we can to support our members to get back on their feet.”
Part of a broader landscape
Harris said HESTA views its insurance offer as interacting with a broader ecosystem of services and support available to its members, and it can be misleading to consider the insurance offer in isolation.
“When we think about our role in the whole ecosystem, we’re making sure that every dollar that our members pay, as close to that [as possible] is going to be providing maximum benefits, and cover that’s appropriate for our members’ needs,” he said.
The degree of engagement of employers and employees with insurance ranges widely between funds. Future Group deputy director of product and operations Meagan Birch said insurance does need to be simplified, but that process is not straightforward and current regulation is a blocker.
“As product providers, it is challenging for us to understand how changes in a TPD definition affect a member, and how are members going to also understand the changes in an easy and accessible way,” she said.
“The regulation doesn’t allow us to give meaningful examples of what’s in and what’s out. What would help us in our industry is easily accessible terminology as a starting point as an incentive for people to engage with their insurance in super today.”
TelstraSuper senior product manager for insurance and accumulation Fiona La Greca said default levels of cover are generally inadequate and remain an area of concern, as does the overall member experience when a claim eventuates.
“It is a really tricky problem to solve,” she said.
“The onus is really on the insurers to provide trustees with suitable solutions, to improve default levels of cover at an affordable cost and to then support us with the member engagement piece.”
La Greca said ongoing work also needs to continue to improve the overall member claims experience. She said it is “concerning how the average person doesn’t understand the process”, and that this is largely because the claims handling process can be complex, technical and generally encountered when the claiming member is under a lot of stress.
The roundtable heard that there is general, widespread acceptance that providing insurance over through superannuation is a good thing.
Is cover right for the times?
AustralianSuper head of insurance product Richard Land said the most challenging issues with TPD include whether the nature of cover is right for the times, the changing nature of claims, and whether, for those who do have it, coverage is adequate.
“It’s probably a little bit outdated,” Land said.
“TPD encourages rehabilitation after payment of the financial benefit, therefore threatening sustainability. Mental illness claims are now very significant, if not the primary cause of claims in TPD. To get assessed within the six months LICOP timeframe is very difficult. It’s very hard to actually get an appointment with a psychiatrist in six months in Australia at the moment due to the supply and demand.
“And then after that there’s various treatments, which could be cognitive behaviour therapy or also medication or both. Some might work [but] this can take a year, two years, three years.”
Land said the cost-of-living crisis has put the affordability of insurance into the spotlight.
“Lots of things are unaffordable,” Land said.
“Housing is probably not greatly affordable. Health insurance is probably not affordable. Holidays across the board, is it affordable for everyone go where they’d like to go? So many things are unaffordable. Provision for retirement – are people appropriately provided for retirement?
“It’s a personal judgment, what you spend your money on. Insurance in super is great, but how does that balance up with funding for retirement, how does it balance up for housing, paying off your mortgage? All those sort of things. It’s really tough.
“And trustees have a responsibility in terms of lack of erosion [of retirement savings]. So I think that is primary in terms of setting default levels.”
A $250 billion ecosystem of expenditure
Any discussion of redesigning TPD cover needs to acknowledge that insurance in superannuation is part of a wider ecosystem of support and services. MLC Life Insurance chief claims and transformation officer Andrew Beevors worked in workers’ compensation for more than 20 years and said that insurance is, in fact, a relatively small part of that overall system.
“If you add in public health, private health, all the income support systems it’s a $250 billion a year ecosystem of expenditure,” Beevors said.
“The life insurance sector is a 5 per cent contributor to that wider ecosystem. Generally, a lot of the members that we manage have travelled through those other ecosystems before they actually enter into the claim process with us in life.
“Having seen all those ecosystems in action, not only here but also internationally, there’s a varying range of experiences that customers encounter. These systems can be quite adversarial, as the customer must prove they have something wrong with them to access the benefit and that can severely impact a member’s expectation of the claims process when they reach the life sector.”
As a result, once a member has travelled through so many other elements of the ecosystem – including public and private health systems, workers compensation, and CTP insurance – making a claim on life insurance can feel like a last resort.
That has implications for product design, and it has implications for funds and insurers in how they may need to engage with members, Beevors said.
