The chair of an industry working group for insurance in superannuation said the government is urging the controversial life insurance sector to implement “as much change as possible” without legislation.
Jim Minto, director of Dai-ichi Life Asia Pacific and former TAL MD, is heading the Insurance in Superannuation Working Group (ISWG), which was tasked to develop a binding and enforceable code of conduct and practice that will guide superannuation funds and insurers in their service of more than 14.8 million Aussies, Australian Financial Review
"The regulators are saying 'you are perfectly capable of making these decisions without legislation, so just get on with it please,’” Minto said. “We also have a very strong steer from the government that we should just make as much progress as possible.
"A lot can be fixed in the existing rules... a lot can be done without legislation and that is obviously the best option,” he said. “The government is telling us to implement as much as we can without [new legislation]."
A key priority for the ISWG is to manage the rising cost of insurance held through superannuation, as Financial Services Minister Kelly O'Dwyer raised the issue of whether life and total permanent disability (TPD) might be better off as an opt-in rather than an out-out product inside the MySuper vehicles, AFR
According to an analysis by actuarial firm Rice Warner, life and TPD premiums increased by 20 to 50 per cent in 2015, citing IOOF, MTAA, FIRST Super, and Mine Wealth as among the funds with the biggest jumps.
"For most people, the cost of insurance benefits is the same as a reduction in the Super Guarantee contribution of about 1 per cent of salary," Rice Warner said. "Effectively, the 9.5 per cent contribution rate reduces to about 6.5 per cent of salaries once premiums, fees and taxes are deducted."
Despite this, Minto remained convinced that the opt-out system is the better choice, saying the group model is the “most efficient” model, without which millions of Aussies would be left uninsured, AFR
Insurance in superannuation also helps the government reduce costs, with Rice Warner figures showing that it lowers the annual cost to security by some $403 million.
Another area that the working group needs to improve, said Minto, is the adequacy and cost efficacy of insurance coverage for superannuation fund members.
"I expect there will be a review from every fund of the type of cover and how much it offers, and what the cost of that is going to be for a member. There is a lot of work to be about the treatment of different groups. For example, some are saying that young people don't need death cover at all and that's a good point," he said.
The ISWG is also set to release a discussion paper this January about another issue plaguing the group insurance sector: the cost impacts on members who have default insurance policies within multiple super funds, AFR
Rice Warner found in a recent analysis that a quarter of super fund members are being charged fees for life insurance policies sitting in funds which have been idle in the past year.
Minto expressed his support of the government's recent increase of the threshold at which unclaimed, lost, or inactive super balances must be sent to the Australian Taxation Office (ATO) from $4,000 to $6,000, saying that it will prevent the balances of members from whittling away due to unwanted insurance policy premiums.
When inactive accounts are sent to the ATO, members lose their insurance coverage but no are no longer required to pay premiums.
With more than 30,000 Aussies having more than six super accounts, Minto said the government needs to exert more effort in simplifying the super consolidation process.
"You have a right to have all your super brought together in one place, and for the Tax Office to sweep up all your available balances swept up into the active accounts. That is not a difficult thing," he said. "The government does have the ability and the information to bring these balances together and make this more efficient."
Not only does the ISWG want to ensure Aussies get the right cover and address multiple default insurance policies, it also wants to enhance and simplify the claims process for group insurance, the report said.
"Every single fund has its own claim form but we need a simpler overall process. This is a longer-term goal but ultimately we want people to go into their fund and not have to go to a lawyer at claim time. We want to make sure people get what they are entitled to a lot more quickly," Minto said.
The code is expected to be released by the end of this year.
Daiichi boss urges life insurers to address conduct issues
Comminsure's review says there was no evidence of willful misconduct