AIA Australia has written to Senators asking them to reconsider moves by the Federal Government to make group life insurance inside super an opt-in arrangement for people aged under 25.
In the letter, signed by AIA Australia and New Zealand Chief Executive, Damien Mu, the life insurer stated that removing this group of people from the default insurance scheme would create an ‘insurance underclass’ that would have serious social and economic consequences.
The letter addresses the Protecting Your Superannuation legislation, first flagged as part of the 2018 Budget, that would apply opt-in provisions to the accounts of members under 25, accounts with a balance below $6,000 and for inactive accounts that have not received a contribution in 13 months (see: Group Life to Become Opt-In for All Younger Members).
The legislation is currently before Federal Parliament having passed through the House of Representatives and has been awaiting a second reading in the Senate since late July.
“We pay benefits every year to the people who will lose their efficient safety net…to save $3 a week”
Mu said while AIA fully supported efforts to resolve account erosion and super fund members holding more than one account, including consolidating accounts, superannuation trustees should be given the ability to offer default insurance cover appropriate to their members.
“If the Government proceeds with its reforms in order to achieve budget savings, this will come at a significant cost, both to consumers who will needlessly lose their cover, and to the viability of the group insurance scheme as a whole,” Mu said.
“We pay benefits every year to the people who will lose their efficient safety net of cover in order to save $3 a week,” he wrote, adding “Everybody should have equal access to a safety net of insurance cover, without discrimination on the basis of age, occupation or wealth”.
Mu said AIA Australia had formed an alternate approach, which had been presented to the Treasurer and Shadow Treasurer, and would save the Federal Government money while providing cover for those affected by the legislation.
Under the approach put forward by AIA Australia, the Federal Government would apply opt-in provisions to inactive accounts and instead of applying those provisions to people under 25 or with low balances, would instead legislate a premium cap for default group insurance of 1 per cent of earnings, with a carve-out for high-risk members, to prevent account erosion.
Earlier this year, AIA Australia released research which found the cost to Government of the move could potentially run into billions per annum and the increase in the average balance of member would be neglible over the course of their working life (see: Shift to Opt-In for Group Life Will Have Minimal Benefit).