Group Insurance

By Lachlan Colquhoun

After 1 July 2019, many people will call their superannuation fund to initiate life insurance claims only to discover – to their surprise and disappointment – that their coverage had been cancelled, a leading insurance executive has warned.

Brett Clark, the chief executive of TAL, told the FSC Summit 2018 that news of upcoming changes to group insurance “will not get through to many members,” with the unintended consequence of impacting “some of the most vulnerable members of society.”

“We will have some poor outcomes for individuals from July next year,” said Clark.

Under changes announced in the Federal Budget, default life insurance would be removed for superannuation fund members under the age of 25, and a 3 percent cap will be introduced on fees for low account balances.

Industry leaders in the Summit 2018 session said the industry was “scrambling” to adjust to the changes, while regulator APRA has called for the start date to be extended for another year, calling them “unachievable.”

Session moderator David Hackett, chief executive of MLC Life Insurance, said that one major impact of the changes was that those people who continued to have insurance within superannuation were likely to face higher premiums as the sector restructured.

“We will have to spend money to get smaller,” said Mr Hackett.

“Then we’ll have to put our prices up, but not by too much, and we’ll also have to invest in innovation even though the returns on that are uncertain.

“And if we do that well, then we have to make a case that group insurance is an attractive place for capital to live and the sort of place Australians will trust more.”

Mr Hackett said that around 70 percent of lie insurance policies in Australia are through superannuation, and 40 percent of premiums are in the form of group default insurance.

“The good thing about default insurance in large pools is that a lot of people pay a little so a few can claim a lot,” he said.

Big pools, said Mr Hackett, created value and produced affordable life insurance, and changes to the size of the pool from changing the default arrangements would have a major impact on the sector.

From AIA, Group Chief Insurance Officer Stephanie Phillips said the reality was that the changes presented insurers with decisions which balanced price and benefits.

“Its either going to be repricing premiums for existing and remaining members or a reduction in benefits or product,” she said.

MetLife’s Head of Group Insurance James Carey said that the changes could be a “horrible member experience” for some people.

He said funds would contact members and ask them if they wanted to retain their insurance, and if they said 'yes’ they could then be told that they would have to pay more. 

Some people who wanted to continue their cover may have to reapply and then be refused.

While the industry panelists supportive the Government position to eliminate duplicated accounts, there were concerns about “opt in” arrangements for people aged under 25 and the cap on those with superannuation balanced of under $6,000.

“Those people with the $6,000 or lower balance, they concern us as they are probably the people you want to cover,” said AIA’s Stephanie Phillips.

“And we pay out a lot of cover for the under 25s. It has been $80 million over two years and the majority of those were for mental health, and that is a condition which does not discriminate.”