An ‘opt-in’ group insurance model would be the best method for addressing the underinsurance problem rather than the current ‘opt-out’ model, ClearView argues.
In its submission to the life insurance inquiry, ClearView said the current ‘opt-out’ model discourages clients from properly assessing their insurance needs and regularly reviewing their arrangements.
It said a system requiring members to consciously opt-in for group insurance in super "will result in a substantial improvement in understanding what they are, and are not, covered for and how much cover they have".
“This will significantly reduce the number of workers who think they, and their loved ones, are adequately protected when they’re not," ClearView said.
“Importantly, it will lead to more workers seeking advice, either via their super fund or a third party, about the type, and level, of cover they need.”
However, insurers TAL and MLC opposed ‘opt-in’, instead indicating support for the current ‘opt out’ model in their submissions.
MLC said that if group cover were shifted to an ‘opt-in’ basis, thereby altering the size and risk profile of the insured population, anti-selection risk would likely increase, leading to an increase in overall risk for insurers.
“This scenario brings with it negative cost implications for all customers, and could potentially cause some people to be unable to access insurance at all – for example if they have a poor health record,” MLC said.
TAL argued that group insurance relies on broad community participation, and that the ‘opt-out’ model “is central to its efficiency and effectiveness”.
“Without ‘opt-out’, the group life insurance model will fail to function, premiums will increase substantially and many people will not be provided life insurance at all through this or any other channel,” TAL said.
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