It is important to regulate and monitor insurance policies to avoid consumers suffering from product failure, however our politicians are barking up the wrong tree if they are planning to develop future policy from this APRA data alone. An insurance policy is simply a solution to meet a need. It would be far more prudent for government to consider the importance of advice being a vital part of the mix that goes with the product solution.
Looking at the overall picture for advised clients, the government will find these Australians are more likely to have appropriate insurance policies that meet their needs, when compared to the unadvised client who just holds a policy in a group super fund.
Over 18 years ago when I began specialising in life insurance, Australia had a major underinsurance problem. The recently released Underinsurance in Australia 2020 report from consulting and research firm Rice Warner has shown this underinsurance issue is not going away, with a tremendous cost to the government in social security benefits linked to underinsurance.
Encouraging Australians to seek appropriate advice is the best way to tackle this issue.
As an adviser, I have an obligation to understand my client’s personal situation and then provide advice that is in their best interest. I will normally attempt to underwrite a client into a retail policy as I have always deemed group super policies to be inferior options (some examples of why will follow below). However, if it is in the client’s best interest to retain their group super policy, that is exactly what will happen. It is quite common for both group and retail policies to be appropriate.
Going back to the APRA report, while I don’t know the specific dynamics of how insurers report their claim declines to APRA, what I do know is an insurance policy is a promise from a life office to pay a claim when the claimant meets the terms outlined in the policy document.
Genuine claims are paid, regardless of whether the policy is a group super or retail policy.
So, if genuine claims are paid, how could it be that the statistics show that group super has a higher claim admittance rate than advised policies? There could be a few reasons for this.
The first is retail policies must be underwritten, allowing the insurer to fully assess an applicant’s medical history and make a decision to manage their risk of a future claim on that policy. This could mean exclusions to claimable events are applied to a policy. In this instance, it is likely an adviser would be helping their client make a claim against their retained group super policy should it provide coverage for a claim where a retail policy has an exclusion.
Secondly, advisers are not claim assessors. While we will discuss the potential validity of a claim with a client, we will generally submit a claim even if we think it will be declined. While this could increase the decline rate reported to APRA, from a claimant’s perspective, it can be a worthwhile process as occasionally I have been surprised to see a claim paid when I expected a decline.
So, why do I deem group policies to be inferior to a retail policy? Here are some reasons:
1. Not guaranteed renewable, meaning that the claim criteria can be changed at any time. I managed a group super TPD claim earlier this year where the policy terms had been changed three times between the client joining the fund and having the claim paid. A retail policy cannot change their assessment criteria once the policy is issued.
2. Group policies can be unitised meaning that as a client gets older, their cover decreases even if they still need the higher level of cover. Generally, I find unadvised clients with group super policies do not have enough cover to meet their needs, even if the policy wasn’t to decrease.
3. Some group super policies can decline an ‘occupational assessment’ of a total and permanent disability claim for events that take place when the life insured is unemployed or working less than 15 hours per week. They will then apply a harsher criteria to qualify for a claim, where clients rarely meet this criteria even though they have a disability. This could be a significant issue now with the unemployment rate as high as it is.
4. Under the Superannuation Industry (Supervision) Regulations, a fund trustee cannot release any income protection payments to a member if they are not gainfully employed at the time of disablement. This will also impact anyone on unpaid leave.
5. If a group super policy has automatically offered income protection, benefits are generally only payable for two years. After two years the client must hope they have sufficient TPD to last a lifetime. As per point 2, this may be unlikely, and government financial assistance may be required.
6. When applying to increase cover levels, group super can often take a harsher underwriting approach compared to a retail policy. I currently have a client who will have an exclusion applied to an increase in their group super cover yet will be covered for the same condition in a retail policy. Interestingly, both policies are offered by the same insurer.
7. Group policies will always deplete a member’s super retirement balance. An advised client will be informed of how premiums paid from their super fund will impact their retirement balance, and whether funding their premiums from their personal cash flow may be more appropriate.
8. At claim time, you may not get paid the amount shown on your statement. Tax can be payable on benefits paid from super. Calculating the tax payable is a complex calculation for a consumer to navigate on their own. My clients are aware of any potential tax liabilities and know that at claim time we will look at tax effective ways for them to receive benefits.
9. Group super policies do not include critical illness benefits. These policies provide lump sum payments for conditions such as cancer, heart attack and stroke. They often provide claimants the ability to afford expensive medical treatment that could extend their life which is otherwise not obtainable via the government’s PBS Scheme.
It is easy to see why consumers would be confused about the cover they have in their industry super fund. Remember, whether it be retail or group super, the insurance policy is a means of providing a solution to the consumer’s need.
Focusing on claim payment ratios between retail and group super offers little value to the consumer. Instead, our politicians must consider the overall picture for consumers and encourage them to seek advice relevant to their personal situation, where the appropriate solution can be implemented.
Lauren Styles, adviser, The Smart Fox
Politians how do you no when there lying . Answer they open there mouths . They are all crooks
Thank you all for the lovely feedback.
I am continually receiving messages about this article being given to our politicians. I want to let you all know that I have been working closely with Peter Johnston from the AIOFP in preparing correspondence that we have been providing to all politicians. Some of the points raised in this article have been submitted to multiple politicians and their advisers. We have also been addressing LIF, the potential ramifications for Life Offices with declining inflows and education requirements.
As suggested by Peter Stathis, please do forward this article and others to your sitting MP. We need to keep educating our policiticians.
Please also support the AIOFP. They have been very successful in getting access to ALL important politicians that could shape the future of our industry. This has been partly made possible due to their FSU affiliation. Peter is doing a great job educating these politicians on the reality of where our industry is going and I will continue to work with him on issues relevant to risk specialists.
Straight out of the “Yes Minister” play book – the situation is beyond belief and would be hilarious if it weren’t reality and so horrifically stupid.
Nice work Lauren. Worthy of us forwarding to our sitting Federal MP. I certainly will do this.
Thank you Lauren for such an informative article and for IFA to publish it. A bit more of facts and rational argument and a whole lot less of rhetoric and ideal-driven agendas makes the world a better place
Why not print this off, and go and show it to them? (with comments below) See what they have to say. Worst can happen is they’ll turf you out of their office. (then you’ve got a good story for your mates & IFA haven’t you?)
Mr Leigh, a former academic and my local member, has developed a habit of jumping at any shadow which he believes puts industry funds in a better light. In the most recent case he misinterpreted a typically vague APRA press release to twist the results of the survey. He was subsequently corrected by APRA but I see no correction, nor apology. Sadly Labor sees every thing in financial services through the prism of industry funds, now that union funding of Labor election programs have reduced with trade union membership and the capacity for political donations.
I have no beef with unions or industry funds in principal( or at least those who tell the truth) but I wish Labor would give up on the ” them and us ” rhetoric. Its just increases the cost of delivering financial advice in the hands of ASIC
A great summary Lauren.
Trust continues to be an industry challenge, with members / clients not believing that insurers will pay their insurance benefit – despite the high percentage of claims being paid.
For this reason, building trust, commences with advice.
Educating the client, informing them of how the policy will benefit them (incl. at claim time), helps to build trust and peace of mind. We see many financial advisers do this well.
Great article giving valuable information – if only the politicians would read it!
I think you will find that APRA have hand picked the data in order to satisfy the result they want. You need to remember that they (just like the politicans) dont care about client outcomes. They only care about their own job, their next job and the kick backs they get from big business to pass legislation to the detriment of the society they are supposed to represent.
Good article Lauren.
Andrew Leigh just jumps when the Industry Funds say jump
Very good points by Lauren. I would add that group policies are now often more expensive than advised policies – a very strange state of affairs, and Australian Super dramatically worsened its TPD coverage definitions a few years ago making claims likely much harder.
I wonder why a Labour politician would prefer people to have more industry cover and less advised cover even though the industry fund cover is clearly usually inferior?