Advice Critical for Insurance in Super

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Comparing premiums for insurance inside super is like a ‘minefield’ according to one research executive, who has urged individuals to seek advice on whether they’re paying too much for cover.

Chant West Head of Research, Ian Fryer, said there was a huge disparity between the cost of cover inside superannuation funds, with some funds having increased premiums by 150% over the past two years. Adding to the challenge of rising costs, said Mr Fryer, is the complexity that is applied by funds when calculating cover for different demographical segments, for example, by age, gender, occupation and smoker status.

He provided the example of a 40 year old female, white collar worker, who could pay between $120 and $767 per year for $300,000 of cover, depending on the fund.

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“It’s a minefield, because competitiveness isn’t uniform across all members,” Mr Fryer said. “You can’t say ‘This fund is cheap’ because it might be cheap for an older blue collar male but expensive for a younger white collar female. There’s a lot of cross-subsidising going on, especially in non-profit funds, where males tend to get a good deal at the expense of females. It’s also very common in industry funds, and some public sector funds, for younger members to pay more than they should for insurance so that older members can pay less.”

…the cost of insurance can have a far greater impact than fees on the size of an individual’s retirement nest egg

The other issue that consumers face when trying to compare insurance premiums inside super is a lack of disclosure.

“Insurance is the worst disclosed area of superannuation,” Mr Fryer said. “The Cooper Review did not address this issue and the regulators have ignored it as well. Instead, all the focus has been on fees. While this is understandable it is also very disappointing, because the cost of insurance can have a far greater impact than fees on the size of an individual’s retirement nest egg.

“Short of comparing quotes from several funds or using a comparison tool such as Chant West AppleCheck, there is nothing in the market to help individuals gauge the competitiveness of the premiums they are paying.”

Further, there are differences between the non-profit segment (industry funds, public sector funds, etc) and the retail segment, such as whether cover is calculated using a unitised approach or based on salary.

The average consumer has no hope of assessing whether their fund’s premiums are competitive

“The average consumer has no hope of assessing whether their fund’s premiums are competitive for them now, let alone in the future, and even qualified advisers find it a struggle.”

To assist in comparing premiums, Chant West has developed a new super fund insurance survey, which enables advisers to identify the relative value of cover provided by a fund. Over 230 super funds have been reviewed in the survey, based on premiums as at August 2014.

For each fund, Chant West has produced an index for the five occupation types, for genders within an occupation type (eg white collar females, blue collar males) and for the fund as a whole. This enables users to see the ‘big picture’ of how competitive a fund is overall, and then drill down to see how competitive it is for a particular member segment.

“Advisers can use the information in the survey tables to cut through all the obscurity and tell their client if the fund they’re in represents good value for them and, if not, which other funds they might consider. And, of course, the funds themselves and their insurers can use the tables to assess their own competitive status,” Mr Fryer explained.



2 COMMENTS

  1. Good advisers who check know this issue well & truly. And the funds insurance PDS is often pretty useless as to premium and to whether or not the cover reduces with age. The Aust Super Insurance PDS dated 1 July 14 still appears to say Own Occupation TPD is available to their members, depending on Occupation Class ( page 12 )

  2. Like all things in our business activities, ” its a moving target ” what was the best or cheapest last year won’t be the same next year.
    And as I try to explain to clients that non underwritten insurance is to help level out the bad risks taken on by insurers or super funds with the good risks.

    I have asked many times at PD days, can we as advisers be given a breakdown of claims on underwritten business vs non underwritten ( group covers ). I think I already know the results but the profitable area has to pay commissions.

    I never got any replies by the way.

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