Leading group insurance stakeholders have identified the loss of insurance benefits as a result of consolidating super funds as a key issue for the market, raising questions about who owns the responsibility for communicating to clients about their insurance needs.
The inaugural AIA Group Insurance Summit, held in Sydney this week, played host to a range of stakeholder panels who discussed the future of the group industry and the impact of regulatory change, such as the MySuper legislation.
One issue that was hotly debated was the consolidation of superannuation funds and the subsequent impact on members’ insurance benefits.
One delegate asked whether the push to consolidate, which has featured heavily in TV advertising in recent years, was a concern for the industry. In particular, she criticised these companies for failing to provide ‘riders’ with their advertising which warned about the potential loss of insurance cover.
… there isn’t 100% clarity on how auto-consolidation is going to work
Richard Weatherhead, Director at Rice Warner Actuaries, pointed out that the auto-consolidation of funds proposed under the SuperStream legislation could contribute to the problem, adding that… “one of the issues is that there isn’t 100% clarity on how auto-consolidation is going to work.”
Responding to the question, BT Financial Group’s Head of Superannuation and Retail, Melanie Evans, said her organisation tackled this issue by ensuring that call centre team members were briefed to discuss insurance benefits with customers looking to consolidate.
“I think it is about making sure all of our staff, who are working on behalf of funds, are aware of this loss of benefit, and that they’re actually acting in the best interest of the person on the other end of the phone, and having that conversation. We know in many instances when that conversation happens, the person may decide to keep their old fund open for the insurance benefits,” Ms Evans said.
Julie Lander, CEO of Care Super, said it was also important to remember that consumers do not think of insurance as a purchase driver for superannuation. She said in her experience, members could often become quite irate about insurance premiums eroding the value of their super accounts. Using the recent merger of Care Super and Asset Super, which led to increases in insurance premiums for Asset members as an example, Ms Lander said it highlighted the importance of the wording used by call centre staff and within member communications when talking about insurance.
Compounding this issue further are statistics that show Australians have a clear lack of knowledge and engagement with their super. According to research commissioned by Suncorp and ASFA*, less than 25% of people say they are actively involved with their super, and 10% don’t even know who their super provider is.
Backing up these statistics, AIA’s Head of Group Insurance, Eleanor Ottaviano, said: “I think it’s fair to say that most members don’t even know they have cover within their superannuation, and that can be upwards of 95% of members in that category. So how do you achieve a level of engagement with those members when you don’t even have a basic level of awareness?”
Ian Fryer, Head of Research at Chant West, suggested better insurance disclosure within Product Disclosure Statements (PDS) could help, as it would make it easier for customers to compare the cost of insurance between funds.
“There’s all these fee templates within PDSs, but there is no insurance template. If you look at an insurance PDS, they’re set out however the insurer likes, and funds don’t even need to include their insurance premiums. It is hard to compare insurance, but it is not impossible.”
… the event’s delegates did not appear to reach a consensus on who had the primary responsibility to identify and act in the end clients’ best interests when it came to insurance
While the majority of stakeholders agreed that member engagement was key the future success of the group insurance market, the event’s delegates did not appear to reach a consensus on who had the primary responsibility to identify and act in the end clients’ best interests when it came to insurance.
For example, one delegate questioned whether it was easier for funds to own the communication about insurance because they are “detached” from the reputation issues that often surround insurers. This suggestion was countered by Steven Travis, General Manager Member and Employer Services at Sunsuper, who said while funds had the moral authority to make that argument, this had to be weighed against the benefits the fund would receive when members increased their cover.
In contrast, Ms Ottaviano argued that the introduction of legislation which requires super trustees to develop an insurance strategy for their funds may remove the need for client engagement in relation to insurance completely.
“If you’re already doing the thinking for your members on how much cover they need, then do you really need to increase engagement with members?” she asked.
*Suncorp-ASFA Super Attitudes Survey 2012
The lack of need to choose is one of the drivers of complacency. MySuper recognises that many members either don’t want to be engaged with their super or feel unable to engage with their super. The onus is on fund trustees to make sure that they have considered the needs of members.
To overcome some of this inertia, it may help to articulate the assumptions that went into developing default insurance designs – this allows the members to focus on whether they ‘fit’ the assumptions used and can the take appropriate action.
If members think that the trustee has designed the insurance just for them then this reinforces complacency.
Industry Funds continue to encourage anyone and every-one to move their superannuation savings to Industry Funds, without advice, irrespective of the consequences.
Take a simple example to illustrate what has caused massive losses to so many who have taken action without advice.
A superfund member moves his existing superfund assets to an industry find based on the simplistic advertising that encouraged him to move without warning him of the consequences of his decision.
What if he is suffering from cancer or some other serious illness and holds life assurance, disability, and salary continuance benefits under his existing plan, yet is ignorant of the loss that will be suffered by him and his dependants. Massive hardship may be forced upon them for having lost superior insurance cover or even a tax advantaged beneficiary arrangement ?
Numerous other consequences of moving from one fund to another have not been considered e.g.taking a loss by moving from one investment option to another at the wrong time.
So, irrespective of the amount of cover, continuation options, total and permanent disability benefits, salary continuance benefits, favourable medical acceptances and other terms and conditions, every-one is encouraged to move without advice !
ASIC should be taken to task over this issue and call for an enforceable undertaking from these Funds and the files of every transfer that has been made to an Industry Fund as, these transfers are most likely the result of the marketing, to move to the Industry Funds without advice.
Advice is what is demanded by law and it is about time that the playing field is levelled.
Surely the Master Fund Managers should work together to prove the real value of qualified and experienced financial planners by attempting to have ASIC act on this take no advice – get rid of your adviser – recommendation”.
So many widows, widowers, orphans and other beneficiaries should be encouraged to group together in a class action to recover what they have lost.
The Industry Funds have had members to drop their existing benefits, including attached insurances and planned investment portfolios, estate and tax planning arrangements, in favour of industry funds but, without advice.
I’m currently advising a client who has 6 super policies (both industry funds and retail). Across the policies there is $2m of life cover, some TPD and IP benefits. Client has approx $1m in debt.
The client has recently been diagnosed with an illness that makes them uninsurable.
Initial request from the client was to streamline the arrangements, but our advice now is to do want it takes to maintain the current arrangements.
This client is now aware of what they have, and more importantly what the family situation could be if the policies were cancelled.
Imagine what auto-consolidation could have done to this client’s family situation.
Imagine what would have happened if they didnt get advice.
David, the point that you make is precisely what I am saying has already happened.
Some time ago I had suggested that all Fund Managers who had transferred balances to Industry Funds ewith insurnace cover shoudl check the registry of births and deaths and let the widows and orphans know that they have a case. I wonder how many transferred members are in hospital who should have been able to claim under Salary Continuance, Tpd or Terminal Illness ?
This is another point that relates to the fact that it is the advisert who places the claims for his clients. I don’t see the insurers trawling the Registry of Births and Deaths looking for claims, nor the poundinght e hospital and tramam ward floors. It is the adviser. And the adviser gives good reason for the movement or betterment of exisitng cvover while it is the FSC who want their coimmissions calweed back.
Make the adviser extinct and taxes will rise to offset the increase in Centerelink and DSS claims. All for a fair rate of pay for the advisers work.
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