Super bodies defend 'cheaper' group insurance

Responding to revelations that super fund members have been victims of claims mishandling by CommInsure, superannuation industry bodies say that reduced underwriting within group insurance does not create problems at claims time.

Speaking to ifa, ASFA chief executive Pauline Vamos said that a majority of life insurance sums, including 71 per cent of total death benefit and 88 per cent of total TPD sums, are held within superannuation, due in part to its cost-effective nature and accessibility.

"Insurance tends to be cheaper within superannuation, reflecting the tax efficiency of the arrangement, the absence of high-cost distribution (and commissions to insurance advisers), the simple product design and the wholesale contracts which provide economies of scale," Ms Vamos said.

"Reduced underwriting is a benefit for members. Group insurance arrangements generally incorporate some level of 'automatic acceptance'. Members receive insurance cover within their superannuation fund (up to prescribed limits) without the need to go through individual underwriting and medical testing.

"We believe that, on the whole, group insurance claims are processed efficiently. There will be exceptions –this is the same with individual insurance claims," she said.

The Australian Institute of Superannuation Trustees' executive manager of policy and research, David Haynes, agreed and said that underwriting is "still a key aspect of group policies".

"Group policies are an agreement between the super fund and their insurer," he said.

"The insurance claims process can be complex and often involves a number of medical and legal professionals regardless of how the policy is taken out. There is an understanding amongst the industry that funds must make this as simple as possible in order to provide the best possible member experience."

However, as far back as 2014, the Australian Prudential Regulation Authority (APRA) raised concerns about the long-term sustainability of group insurance, with the market feeling the effects of a "significant" increase in claims numbers and duration that APRA said may hit the insurers' bottom line.

In its 2013 Insights Report, APRA said it had observed poor practices in tendering and pricing of large group insurance policies over many years, with the margins being too finely tuned to withstand even a small upward change in claims.

The regulator emphasised that pressure would also be applied by an uptick in mental health claims.

Speaking to ifa's sister publication SMSF Adviser, Sonia Cruz, a senior consultant at The Fold Legal flagged concerns with the group insurance market, saying that it is not always as cost-effective for super fund members as it may look. 

"You'll have advisers recommend insurance within superannuation, and in some instances I've seen cases where the insurance premiums actually exceed the superannuation guarantee contributions that the client makes," she said.

Despite these concerns, Mr Haynes emphasised that the tendering process between superannuation funds and insurance was "rigorous".

"Funds are determined on getting the best outcomes for members. Contracts vary in length and are regularly reviewed," he said.

Ms Vamos added that funds are required by APRA to perform a detailed review of prospective insurers before entering into group insurance arrangements.

"The insurance benefits offered must be suitable for members of the particular superannuation fund. The issues that are subject to review are broad and include pricing, insurance product design, administration and claims processes," she said.

Last week, a Four Corners and Fairfax Media investigation discovered problems with claims handling at CommInsure, including CommInsure's allegedly using out-dated definitions for medical conditions that included heart attacks. As a result, the CBA subsidiary announced that it would overhaul its insurance offering, upgrading illness definitions and setting up an Independent Review Panel.

It was revealed that the four policyholders featured in the Fairfax investigation were members of industry superannuation funds. Funds including CARE, Kinetic and HESTA have group insurance contracts with CommInsure.

Over the 12 months to December 2015, total in-force group risk business increased by 14 per cent to $6 billion, according to figures by DEXX&R.
 
For the same period, all of the top 10 companies in the group risk market recorded increases in in-force group business. TAL regained market leadership in the group risk segment with a 27 per cent increase to $1.7 billion in in-force premiums following TAL’s appointment as insurer to the Cbus industry fund.

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0 #13 Old Risky 2016-03-22 14:16
Jimmy I understand that when members seek to increase their cover from the Default cover, thus invoking underwriting of the increase, commission is paid to the Super Fund. Around 30% I hear
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+1 #12 Jimmy Neutron 2016-03-22 12:25
I posed a similar question elsewhere Old Risky about the duty owed by there trustees to their existing members and how they should rank well above the interests of prospective members. It seems that there has been a desire to make it as easy as possible to siphon up new members with offers of 'cheap', 'easy to access' insurance cover that is offered by way of automatic acceptance up to set levels.

As can be seen by the changes at Australian Super where they changed the definition on TPD to all members due to their poor claims experience. Instead of looking after existing members by tightening up the AALs, they instead prefer the option of looking after prospective members by retaining the generous AALs.

To me that's a clear breach of their duty in my book. Why doesn't Adele Ferguson investigate that? Or is only financial planners that she's interested nailing to the mast?
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+2 #11 Jimmy Neutron 2016-03-22 11:47
Interesting comments elsewhere that the Union Super Funds are the recipients of comms paid by the group insurer that wins the tender. Wouldnt it be interesting if this was actually found to be true. What total hypocrits this would paint the Union Funds and their advertising.
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+3 #10 Old Risky 2016-03-22 10:42
I have a question for Ms Vamos

The 4 corners story belled the cat on super Trustees
Does she believed ALL of the Trustees involved in these TPD & TI cases with Comminsure actually acted in the best interests of the Members of their Funds

Or were the Trustees worried these claims if paid might impact the Profit Share and predicate yet more premium increases, ruining the chief marketing pitch of cheaper insurance

Group super Death & TPD CANNOT be properly costed while Industry Funds dangle "cheap "DEFAULT COVER to new Members. The solution is easy, ban DEFAULT COVER

Finally, lets say Comminsure pays the TPD claims under pressure. What is the guarantee those same Trustees, reading the SIS Act, will then tell Members they do not qualify for the payout under the SIS Act. Oh dear !!!

Ms Ferguson, in her bias against advisers, failed to mention Super Trustees.
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+5 #9 Walker 2016-03-21 11:56
When is Adele Ferguson going to jump on this story and report on it accurately.

The industry funds need to be brought to account and their 'spokesman' needs to issue a formal apology to real financial advisers who represent the interests of their clients instead of funding corrupt union officials.
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+3 #8 Damian 2016-03-19 09:40
I'm having so much fun writing bucket loads of fully underwritten cover for clients inside their Industry Fund,some of the premiums being charged for TPD by these Funds has to be seen to be believed. Just be careful to make sure your client salary sacrifices money to cover premiums. The next attack by government will be on this strategy. "Greedy Advisers writing high levels of cover and draining the retirement savings of clients".
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+15 #7 Jimmy Neutron 2016-03-14 16:50
In many many cases we are able to provide clients with better quality, fully underwritten policies for a lower premium than they could get within their union super fund. When I point out better product for a lower price my clients say it's a no brainer what option they want.

And even when the union fund has an equivalent definition, the wholesale change to members cover overseen by Australian Super shows them that the union funds are only interested in gathering market share by slick advertising, not by looking after the members once "they are all in this together". It's a shame that the so called investigative journalists like Adele Ferguson and others are so blind. Or maybe just biased.....

The article in yesterday's SMH by John Collett was a case in point. Telling his readers that they should be getting own occ TPD in super. And which of the better or worse trauma policy definitions they should look for in their TPD policy. A man with no idea about which he writes
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+11 #6 Dave 2016-03-14 14:49
lets look at facts. It is cheaper- but why.
Q-super--go out on TPD, ICP finished at the same time
Rest super- don't claim terminal illness- as per the new PDS- will pay the lesser of term or tpd and you know the standard for industry tpd, 2 units. What a rip off.
Yes it is cheaper because you get exactly what you pay for- grossly inferior products.
These facts are clearly shown in their PDS and I haven't looked at others yet. Wonder what else can be found?
Now there is a fantastic tool to support advice and show industry cover for what it is.
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+4 #5 Melinda Houghton 2016-03-14 12:57
What is the point of having an insurance policy that is not guaranteed to provide the same terms and conditions the next year, and certainly not guaranteed to pay out due to "out" clauses that the ignorant majority have no idea exist.
And of course there are problems, anyone involved in the Risk business can give you dozens of examples of claim issues around group cover.
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+5 #4 Paul 2016-03-14 11:39
It's happening already Terry. Comminsure was one of the main providers of unsustainable union super group insurance. Look what happened to their claims handling. As a general rule I try to avoid the retail policies of any insurer with large union super exposure.
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+5 #3 terry 2016-03-14 10:58
increase of 14% mainly due to massive group rate hikes due to poor claims histories... give it time, these group policies will lead the retail side to be punished with harder underwriting and tougher claims payments ..good system eh...
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+4 #2 Ben 2016-03-14 10:53
It is immoral for super funds to profit from insurance which members haven't agreed to. That's the biggest scandal. It makes me feel sick every time I meet a young person who has multiple super funds, each one with insurance premiums eroding the balance. All insurance inside super should be OPT-IN.
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+13 #1 Graham H 2016-03-14 10:28
How incredibly naive, of course the claims problems are created at underwriting, that's when the: "what we wont Pay for" clauses are inserted into the contract.
is it not bad enough that the ISN blame advisers (and anyone else for that matter) for their Cheap(and nasty) price at any cost short sighted attitude?
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