In a submission made to the Productivity Commission’s superannuation review, ClearView has warned of multiple “shortcomings” undermining current group insurance arrangements.
The life insurance and wealth management firm said group insurance arrangements within the superannuation system pose a number of problems and that the current ‘opt-out’ system should be replaced with an ‘opt-in’ system to rectify these issues.
“There are several shortcomings and pitfalls with group life insurance which ClearView believes will be corroborated by the member surveys proposed by the Productivity Commission,” the company wrote in response to the Productivity Commission’s ‘Assessing Competitiveness and Efficiency’ inquiry in to super.
“While group life cover often appears prima facie 'cheaper' overall than buying corresponding cover via standalone retail policies, this comes at a number of underlying costs and also often means that the group and standalone retail policies are not directly comparable.”
The submission noted that the current group insurance model uses a “one-size-fits-all” approach, which provides members with approximately 20 to 30 per cent of the cover they would typically need, and that a lack of education and advice meant many members are unaware they might be underinsured.
“The very provision of the default cover seems to give many members a false sense of security, and/or the fact they have cover dissuades them from properly and carefully considering what their cover needs might actually be,” the company said.
Additionally, many members are paying for cover they “don’t or can’t use”, a problem particularly prevalent among casual and part time employees and one which ClearView argues also makes the cost of group insurance appear cheaper than it really is.
“To the extent that many are paying for cover they can't claim on (or have restricted ability to claim), this over-payment by this significant group, simply reduces the apparent rate paid on average,” the submission said.
“This is not a genuine advantage. If, say, 20 per cent of retail customers paid for cover they could not claim on then retail rates could be reduced 20 per cent to appear 20 per cent cheaper.”
The company suggested that an ‘opt-in’ system would help mitigate the risks they say the current group insurance arrangements present.
“ClearView believes that 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 aren't, covered for and how much cover they have,” the company 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.”
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