The commission proposed in its draft report, How to Assess the Competitiveness and Efficiency of the Superannuation System, to assess whether the cost of insurance is being minimised, using quantitative indicators focused on member insurance costs and prices.
“The premiums or ‘price’ of insurance within superannuation are typically considered to be significantly lower than for comparable cover obtained through retail products outside of superannuation,” the report said.
“This is attributed to multiple factors such as tax advantages, low-cost distribution, simple product design and bulk purchasing.”
The commission noted that, in an efficient and competitive system, trustees would seek the best deal for their members from the most competitive insurance provider.
However, it questioned whether insurance prices are competitive from an individual’s perspective, noting that it would depend on their circumstances and risk profile.
The report said many people have the same type of insurance cover across multiple super accountants and duplicate insurance policies can erode any cost advantage otherwise received.
“The persistence of duplicate insurance suggests that some people have more cover than they require and are unnecessarily eroding their retirement balance,” it said.
“This risk is greater where there is member disengagement and/or a lack of knowledge about cover, including due to poor disclosure of information.”
Typical public servant, no idea whatsoever about facts. Most cost comparisons I see show retail is both cheaper and with far superior TPD definitions.
So if they are investigating anything, it should be the union, sorry, industry funds and what cover they offer their members.
Good point…
I’m hoping Whacker Williams delves deep into group insurance in super via senate committee he is proposing.
You are assuming that a government report should be based upon research and factual information rather than starting with the results and working back to the questions that fit the desired answers.
Herein we have the very reason why misinformation becomes so called knowledge by those advisers who work on the fringes of financial advice such as accountants.
Is it any wonder people are confused about what they have or should have in place.
May I respectfully suggest that the Productivity Commission review its interim findings and conduct research to include the following:
1. Insurance premiums are no longer “significantly lower” than comparable retail products. The fact is they are often more expensive. Recent tax rebates on retail policies have further eroded the previous untruths around premium comparisons.
2. The fact remain that most people have far less insurance than they need as they have not sought personal advice.
3. In an effort to keep insurance costs lower within group plans Trustees have allowed insurers’ policy terms to be eroded. In particular, TPD Any occupation wording has had additional rehabilitation requirements inserted into the policy (ie Aust Super 2014 changes) which lessens the prospects of payments either being made, or made within a timely manner.
4. Group policies do not provide a guarantee of coverage to members. Policy terms can change, as above, hence those with changed health status have reduced chance to obtain full coverage in the retail space. Members are not even aware of changes in the terms of the contract the Trustees are implementing until this is highlighted by personal advice. Posting a general notice online is inadequate.
5. Many group insurance plans reduce levels of death and tpd cover annually in order to keep premiums lower, and the members are not aware of this or how this affects their financial position in the event of death or tpd unless they seek personal advice.
6. Group plans do not provide a facility for level premiums, which ensures long term affordability of coverage the member needs.
It would be wise to conduct the review with current comparative information and in conjunction with risk advisers who are fully aware of these shortcomings of group plans held by superannuation plans.