Two of the largest industry superannuation funds have announced significant increases to their insurance premiums, with one insurance executive saying he expects more funds to follow.
From the end of June 2013, both AustralianSuper and REST Super will introduce new rates for life, TPD and income protection covers. Speaking on behalf of TAL, who provides the insurance for AustralianSuper, Group CEO and Managing Director, Jim Minto, said it was likely that premiums would increase across the industry over the next three years.
“In the last few years there’s been a marked up-surge in claims experience, which has led to significant losses across both the retail and group insurance markets. This is not something that is confined to the group market,” he said.
“Although different schemes are seeing different price adjustments, the reality is that there are adjustments across the board. It will be a three-year price reset. AustralianSuper will be just one of the funds to move on this,” Mr Minto said.
AustralianSuper has increased rates by around 20 – 25%, depending on the age of member, the type of cover they hold and the amount of cover. Despite the latest changes, the fund said its members were still paying less for the equivalent insurance cover than in they did in 2006.
REST Super members will also see their premiums increase, but the fund has also introduced new default levels of cover and improved benefits.
Basic Death cover levels will increase for members aged 25 and over, by approximately 30%. Income Protection cover levels have also risen, while TPD levels remain unchanged. The insurer, AIA Australia, has also introduced a reduction in the TPD waiting period, and an improved partial disability definition for Income Protection.
I think you’ll start to see changes in product design to reduce the costs
In keeping with the changes to default cover levels, the most significant premium increases will apply to those aged 25 – 59. On average, members will see Basic Death cover costs double, and Income Protection premiums increase by around $1.80 per week (for five units of cover).
The latest increases follow those introduced Media Super at the beginning of 2013 when it appointed new insurers Hannover Life.
Mr Minto said that it was likely that prices would remain under pressure in the short term, particularly if the claims experience continued to deteriorate. However, he indicated that sustainability issues would also lead to other changes in the market.
“The next logical thing that flows from price increases is how the insurers make the offer more sustainable. I think you’ll start to see changes in product design to reduce the costs. For example, not everyone needs the ‘Rolls-Royce’ cover. There may be greater flexibility for members to select the benefits they want in the future,” he said.
