Submissions to the life insurance inquiry have revealed a divide on whether the ‘opt out’ group insurance model is the best way to address the under-insurance problem.
ClearView said in its submission to the life insurance inquiry that group insurance should be required to be offered on an ‘opt in’ basis rather than the current ‘opt out’ model.
“We believe a system which requires 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,” ClearView said.
“This will significantly reduce the number of workers who think they, and their loved ones, are adequately protected when they’re not.
“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 oppose ‘opt in’, instead lending their support for the current ‘opt out’ model in their submissions.
MLC said that if group cover is 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 model, 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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