Insurance and the Royal Commission
Insurance was the last sector to come under scrutiny by the Royal Commission. Ineffective regulation, aggressive sales tactics and difficult claims processes were just some of the issues uncovered. Coupled with the proposed Protecting Your Super Package Bill 2018, these findings will have far-reaching consequences for insurance within superannuation.
What do the findings of the Royal Commission mean for insurance?
Australians already undervalue insurance, and the stories the Royal Commission has uncovered will only exacerbate that situation. Add to this the Protecting Your Super Package Bill 2018 (planned to start July 1, 2019 to make default insurance opt-in instead of opt-out for members under 25, for those whose super account has not received contributions for 13 months or where their super account is below $6,000), and we will only see an increasing number of individuals with no cover or inadequate cover.
"Whilst group insurance received relatively attention from the Royal Commission, which focussed mainly on direct and retail insurance, the Royal Commission will lay important groundwork for much-needed improvements in respect of insurance. However, uncovering specific issues doesn't go far enough. What needs to happen is a very thorough review by super funds and their insurers covering exactly what insurance is provided, and the manner in which it is provided, in order to win back consumer confidence," explains Rhonda Virtue, Principal at PFS Consulting.
"Group life and disability insurance is a highly complex area catering to hundreds of thousands of superannuation fund members, often under the one policy. To be effective, it requires strong oversight and ongoing review."
"The number of underlying issues there can be within the complexity of group insurance is not always necessarily appreciated. Most would see the acceptance or decline of claims as the biggest issue. However, there's actually a broad range of significant issues which can exist well before a claim occurs," explains Rhonda. "These can include, but are not limited to, eligibility, commencement, recommencement and cessation of cover and the premiums associated with that cover. Robust administration and clear communication of the conditions of insurance arrangements for fund members is a real challenge for the superannuation and insurance industry as a whole."
What will be the impact of the proposed insurance legislation?
The proposed Protecting Your Super Package Bill 2018 will have far-reaching consequences for the insurance and superannuation sectors, and especially for members of superannuation funds.
These changes will have a particular impact on young people, who we know are already disengaged from superannuation and insurance. Though still vulnerable to death and long-term disability, and sometimes already with dependents, the majority are unlikely to believe they have a need for insurance. Others making a late entry or re-entering the workforce are likely to have lower balances and may well find themselves without insurance when they need it.
Current members are almost certainly going to be impacted by higher premiums because of the changing demographics of the funds' memberships, and automatic cover levels will also be under scrutiny by the insurers.
"Insurers will be hard pressed to manage the repricing required and super funds will face an uphill battle to put these new insurance arrangements in place in the current timeframe" says Rhonda. "There are also product and policy issues they'll have to address. Quality communication and robust implementation are going to be critical."
How can PFS Consulting help?
PFS Consulting's dedicated insurance team has many years of experience assisting funds with their insurance arrangements. We can complete full reviews covering all aspects of a trustees' insurance arrangements, from the policies and product disclosures to how these are administered and communicated.
Funds that do complete a review will be much better off for it, even if they are surprised by what it uncovers. So too, of course, will be the members. The best position for everyone is to know the right cover is in place when it is needed, and the right premiums have been paid along the way.
For more information on our insurance services, and how we can help you in light of the Royal Commission, contact the team at PFS Consulting today.