July 10, 2018
ClearView Life has repeated its call for all life insurance inside superannuation to be offered on an opt-in basis to all fund members claiming many members are under-insured, unaware of what they are insured for and are paying too much for the cover they receive.
The claims were made as part of a submission to the Senate Economics Legislation Committee which is examining changes to opt-in arrangements first raised by the Federal Government in the 2018 Budget and contained in the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018.
At the time of the release of the Federal Budget, ClearView stated it would lobby to end the current opt-in system for life insurance inside superannuation (see: Group Life to Become Opt-In for All Younger Members),
and in its submission stated the proposed legislation was a sensible policy that would protect the superannuation balances of members being eroded by life insurance premiums they did not need or could not claim on.
In the submission, ClearView claimed that group life offered a ‘standard’ level of cover, usually within the $100,000 to $200,000 range and with limited terms and conditions, which represented only 20 to 30 per cent of the actual cover required for a full-time worker on average earnings with young children.
Related to this was a lack of member education or advice and “…that many members seem to think the cover they have been provided by their super fund is ‘sufficient’. As indicated above, this is not the case for many members who end up underinsured as a result,” ClearView stated in the submission.
“In effect, the very provision of the default cover seems to give many members a false sense of security…”
“In effect, the very provision of the default cover seems to give many members a false sense of security, and/or the fact they have cover dissuades them from properly and carefully considering what their cover needs might actually be. In this respect, the behavioural consequence of the default cover does as much harm as good for many members.”
ClearView added that many members pay for insurance they don’t use as they don’t know they have it or don’t understand what they have and “…there is a tendency for these members to not claim benefits they may be entitled to” while others are covered for benefits they cannot claim, including income protection which requires a minimum level of employment to be eligible to claim.
The life insurer also claimed any cost benefits to consumers were illusory and were often the result of a product being provided without advice resulting in the wrong cover, inadequate levels of cover, or insurance that is not needed.
The submission stated the reason for the apparent cost advantage compared to retail advised life insurance was due “…to the extent that many are paying for cover they can’t claim on (or have restricted ability to claim) [and] over-payment by this group simply reduces the apparent rate paid on average”.
“This is not a genuine advantage (if, say, 20% of retail customers paid for cover they could not claim on then retail rates could be reduced 20% to appear 20% cheaper,” the submission claimed, adding the price of ‘like for like’ cover was also distorted by inherent cross subsidies within the group life model.
These included the healthy subsidising the unhealthy, those with restricted claim ability, such as part-time and casual workers, subsidising those that can claim in full and younger workers subsidising older workers, which ClearView claimed was an unsustainable model given the current and future changes in Australia’s workforce.