The Prudential Standard SPS 250 requires insurance records going back at least five years, covering claims, membership, the sums insured and the premiums paid. Where data has not been this complete then premiums have not always reflected reality.

Michael Rooney, acting chief executive officer for Media Super, says part of the driver for higher premiums at his fund is this more scientific approach to data. He saw this on Media Super’s most recent insurance deal and contrasts it with how tender negotiations worked in the past.

“It [used to be] a very short and sweet conversation and a lot of assumptions were made when they came out with very competitive figures. This time around there was a lot more questions about our profile and our membership and expected growth or otherwise in the future. A lot of talk around how we thought consolidation was going to affect the membership. So the insurers are taking a lot more care in trying to understand the profile of the funds than they did three years earlier, before they actually come up with pricing.”

In the past this lack of clarity came with a cost.

Jeff Humphreys, principal at CHR Consulting, says: “We always understood that there was poor quality data and as actuaries we would allow for that. So a fund that had what we thought was poor quality data we’d get loaded for some degree of uncertainty.

“It needed someone like an APRA to drive that and that data quality and completeness of process is a great step forward for the industry. It will give us better pricing.”

Frank Crapis, head of industry funds, CommInsure agrees the new data standard makes for a more robust process.

“For me a lot of that thinking or planning was being done in the past but now it’s putting it into a structured framework so that can be reported on and tracked and monitored. So, a lot more questions are being asked.”

These data changes are coinciding with insurers becoming pickier about the risks they want to insure.

“There’s a lot more work being done upfront to determine whether a particular fund or the profile of a particular fund is within an insurer’s risk appetite,” says Crapis.

Jeffrey Scott, executive manager insurancetech and business delivery, CommInsure says APRA’s data standards provide a more consistent basis for pricing.

“Fluctuations in premiums are going to be far less dramatic. Which is a good thing for members and funds. The consistency of definitions means that if a person is going to be comparing between funds they know for a fact that their death cover and TPD cover and for the most part their income protection cover, their benefits inside are going to be fairly consistent as well.”

Karen McAlpine, client manager at Swiss Re, is hopeful this stability will lead to innovation.

“We are starting to see that the three year cycle change and a more of a partnership approach occur with funds and insurers and that the whole value chain starts to look at partnerships and long term prospects. That’s when you start to see innovation in the industry.”

Though how much members take notice is a moot point. Rooney describes a tepid member response in reaction to Media Super’s recent insurance re-rate.

“We were surprised with the lack of interest in relation to the premium re-rate. We really thought we’d get a lot more calls and we geared up the call centre and prepared to talk to members more about it and we really just didn’t get the hit. So I’m not sure if members understand the cost of premiums.”

Indeed there was general agreement of the need to change the low levels of awareness among members.

Jeff Scott says there needs to be the same educational focus as on the investment side.

“People know they need X number of dollars to live a comfortable lifestyle in retirement once they finally turn age 65. We now need to say: if you don’t make it to age 65 – if something bad happens to you – then how is your insurance going to help you through that bad time? And how much is enough? So is one unit of cover enough for you throughout your entire life? If it isn’t, then how do you go about applying for new cover, and then sometimes taking cover away when you don’t have those responsibilities anymore?”

As a mark of this ignorance of insurance within superannuation cover, Scott cited fears that some of the better adverts for retail provided insurance could sway members who were already covered by their superannuation fund.

Bernard O’Connor, company secretary and manager of member services at NGS Super, agreed.

“You’re dealing with a deep-rooted sociological cultural problem. You’re not going to find the answer immediately. I know some retail funds have car crashes [on TV] and it makes it look like fun. There’s a crash and then suddenly it’s all fixed up and everybody’s happy. So I don’t think that’s the answer but there’s a chronic under insurance problem, it’s cultural. It’s like smoking and drink driving. You can see how those campaigns went – 20 years, heavy media blitzing and finally you get a sociological attitudinal change. It’s similar with insurance.”

Michael Rooney believes the answer is a unified industry advertising campaign.

“If you look at where the industry funds got its success it wasn’t through the 20 years we spent advertising on our own. It was the last five or six years where the ISN has advertised on behalf of the group. And the day that decision was made suddenly we come relevant to people and people remember our ads. And that’s something the group insurance industry can learn from – there are some benefits in advertising alone, but there’s also a hell of a lot of benefits being united on education.”

Andrea McDonnell, principal and actuary at Aon Hewitt believes employers are best placed to engage as they can talk to members onsite about the level of cover they have.

“One of the reasons for claims increasing is the health of the Australian population and certain aspects of those deteriorations in some of the modifiable health aspects – so diet, exercise and that sort of issue – one of the things that we’ve seen that some employers have been keen to engage in is just to speak to their employees and to give them more tools and awareness to look at their own health.”

There are other areas for improvement. Ian Fryer, head of research at Chant West, says funds could be smarter about their default cover.

“We looked at the top 30 industry funds and only ten of them have any shape to their default cover. All the rest are just a dollar or two dollars a week for a fixed number of units and you get what you get. And that means from age 40 to 50 you’re covered by 60 percent. And that’s not good enough because members say – ‘okay I’m aged 30, I’ve got a certain amount of cover, I’ve got $300,000 cover – gee that sounds pretty good. But it gets to age 50 and it turns out I’ve got $100,000 cover.’ That’s not enough.

“So default cover needs to be looked at and we need to move away from fixed cost which is easy and move to needs. In addition to that I think there needs to be life events and the ability to dial up.”

The organisation recently increased its number of member funds from 15 to 17, a figure dominated by not-for-profit industry-wide superannuation funds. These funds cover 6.6 million employees representing 58 per cent of or 11.4 million Australian employees.

Margo Lydon, chief executive of Superfriend, said that around 20-25 per cent of death in service claims were due to suicide.

Figures from the Australian Bureau of Statistics released on Friday show that suicide is the fifteenth leading cause of all deaths, but that over three-quarters (76.0 per cent) of people who died by suicide were male, making suicide the tenth leading cause of death for males.

“This is a really significant issue for the insurers, the administrator and the funds,” said Lydon. “Mental illness claims are the most costly and they are the most complex to administer. These are real challenges for their businesses and we know [the rate of suicide] is going up.”

All-round benefits

Improvements made by employers and funds in the way they looked after the mental health of their staff would ultimately benefit all members.

“If we can ultimately reduce the claims or the duration of claims coming through around mental illness and death where the cause of death is suicide, that is going to help the whole pool of members financially, as well as from an ethical and societal aspect,” she said.

Lydon hopes Superfriend will have the same impact on suicide rates as the national campaigns aimed at reducing deaths caused by dangerous driving.

Superfriend helps provides access to mental illness care by creating advertisements for super fund members and by providing super fund staff with training in how to converse with members who are distressed or at risk of suicide. It also provides articles for member newsletters, with many of these resources being channelled from organisations such as Work Sane Australia, Lifeline Australia, Mental Health At Work and the R U OK? Foundation.

The latter organisation is dedicated to encouraging regular meaningful conversations between family, friends and community members to prevent suicide.

It has a national “day of action” on the second Thursday of September (September 12, 2013), with the reminder to check in regularly with family and friends.

At the time, One Path was the group insurer for Just Super, which merged with Print Super into Media Super, a $3 billion industry fund that primarily attracts workers in the media and creative or digital sectors.

While industry funds such as Media Super tend to review their insurance options every three years, they don’t necessarily go to market. The last time Media Super underwent a tender was 2009. But this time was different, says Michael Rooney, who is acting chief executive of Media Super until Graeme Russell assumes the post at the end of March this year.

Premium hikes

First, there’s been a hike in premiums, which Rooney attributes to an unexpected, and quite substantial, increase in claims across the board in the last three years. He says it’s not uncommon during a market downturn to see an increase in disablement claims. But there has been another major shift that took the fund by surprise.

“One thing that’s really been quite significant compared to historical figures in our fund has been the increase in claims on cancer, so it’s not something that you could attribute to the market conditions. It’s quite unusual.”

The figures are relatively new, but Rooney says the fund investigated internally to understand the phenomenon, and to determine whether it’s primarily in a specific market. “We’ve found that it’s actually across the board. There’s been a proportionate increase in all funds, so it’s not a particular job type… We are talking further to our insurers as well to keep monitoring and try to get a better understanding over the course of this policy, so that we can better understand going forward as well.” 

Rooney believes increased awareness of member entitlements post-GFC has also contributed to the higher claim numbers, including members claiming benefits for older injuries. “The ability to put a claim in is there and we have seen a number of very, very old claims being paid over the last couple of years.”

Meanwhile, overly competitive pricing in the last 18 years means there’s greater focus on ensuring insurance is more sustainable than cheap. “You want the best price for your members obviously, but you want the best sustainable price,” Rooney says, noting that insurers can drop out of the market if they discount too heavily and competition drops.

“Competition will always keep the price at a reasonable level, but I think the sustainability is also important to ensure we keep that competition in the market.”

On sustainability, Rooney says a better balance is being achieved. Of its 2009 tender, Rooney says the fund received a substantial discount, and it suspected that the price was unsustainable.

“If they’re prepared to cover members for that price, you take it, even if it’s only for three years, because that’s what the market at the time was prepared to charge for it,” he says.

“But in the back of our minds and a couple of conversations we had at the time, we felt it was overly competitive and an unsustainable price in the long term. I’m hoping that this round will see much better and more sustainable pricing, which I think will be good for the industry in the long term.”

Tender difference

Meanwhile, there are other noticeable differences in the current tender rounds. A more attentive insurer is one observation Rooney makes about the tender process. “The market’s been extremely competitive and cutting costs for a long, long time, but they’re now starting to see that they need to take a more realistic and holistic approach to their offering, and ensure that they’re taking into consideration all the information they possibly can to make the pricing right.”

The process is also more complex, but it’s not insurers complicating things, says Rooney. It’s that funds see insurance as a clear point of difference, particularly with a large proportion of members taking default options, and with the introduction of My Super.

Members also require more customised insurance coverage. “When I first got involved in superannuation and insurance, you had a very basic policy, very basic definitions and everyone offered much the same,” says Rooney. “Today, we cover a lot of freelancers who are actors and journalists, for example, and they have special needs.”

For example, journalists working overseas may have restrictions, but Media Super’s policy has been tweaked to allow them insurance coverage. “You’re looking for that difference and ensuring that the cover meets the requirements of the membership that you’re attracting.”

Graham Sammells, chief executive of operations, risk and technology consulting firm IQ Group, feels tremors in an industry experiencing the biggest wave of change in the past 20 years. The deadline for July 2013 changeover to a new regime is very tight, what with SuperStream and Future of Financial Advice changes being implemented throughout this year and next. Players in the super fund sector, including its extended web of administrators, custodians, investment managers, fund managers and other providers, will simply need more time, he says. In a November-19 submission to APRA, the Association of Superannuation Funds of Australia suggests the new requirements be phased in from the September quarter of 2014 (see the box on page 36 for ASFA’s submission).

Great opportunity for a standard business reporting framework

In the meantime, it would be a great opportunity for APRA and ASIC to integrate a standard business reporting (SBR) framework, he says. “That amount of crossover in the data APRA wants to collect and the data that ASIC is currently collecting for the efficiency of the reporting entities – the super funds – it would just make a whole lot of sense to extend the SBR framework for superannuation to cover these reporting requirements,” Sammells says.

A lot of the SuperStream changes going through Parliament incorporate the SBR framework, so the industry is already familiarised with it. “It’s like creating a data dictionary for the industry,” he says, “so that everybody understands what a particular piece of data means, and the whole point here is to extend the dictionary to cover these new requirements.” The technicalities are not a big deal, it’s the definitions and taxonomy that will seem like hard work, he says.

MySuper compliance

At the same time, funds will also have to turn their focus to insurance as the MySuper deadline approaches. The government’s Stronger Super reforms require all APRA-regulated funds to offer life and total and permanent disability cover, and some will be scrambling to put options in place by July 1, says Rice Warner Actuaries head of life insurance, Richard Weatherhead.

“Super funds have had benefit designs in place, but they will have to reassess them based on the fact that they are designing specifically for MySuper,” Weatherhead told Investment Magazine this year. “Insurance is a very important part of the MySuper equation.”

APRA stipulates that trustees’ default levels of cover be calculated using a “reasonable and well documented” depth of data. To do so, Weatherhead says funds would need to hold at least five years’ insurance records.

Many will not be able to meet this criterion, he says. “Many funds are ill prepared for this, just as many of them are ill prepared for issues such as the maintenance of insurance data,” he says.

Coordinating the data chain

Funds that are on the front foot will stand out when MySuper comes into being. The inclusion of income protection insurance is one opportunity to look good. Trustees will have to weigh the cost of income protection insurance against the impact on benefits in drawdown phase, of course. “It’s a balancing act for trustees,” he says.

The new APRA requirements will see a much thicker stack of information about investments delivered, and this fine-grained data may be scattered among outsourced providers to a fund. These providers might have to rely on further providers, and so forth, so that the requirements to comply reach far beyond the universe of Australian super funds. “There’s a whole food chain of data here that’s got to be coordinated,” Sammells says. “No one’s saying it’s a bad thing; no one’s complaining about increased transparency – it’s just the quantum amount of work that needs to happen in the proscribed timeframe.”

The strain of compliance could see further consolidation among providers, who already have to justify every dollar of fees charged. Increased regulatory requirements inevitably lead to increased costs to a business and changes to data collection will be one more catalyst for consolidation, Sammells says.

Between 1996 and 2006, the number of APRA-regulated superannuation entities fell from 4747 to 872. In 2011, there were 347 large APRA-regulated funds. A strict penalty regime that accompanies the new requirements will be hanging over funds.

An agreed set of standards about how parties communicate to each other will lift efficiency across the sector, without doubt. APRA reporting requirements haven’t changed since 2004, and current practice can involve spreadsheet attachments flicked this way and that, faxes, emails and analysts poring over reports from investment managers to pick out only what they need to satisfy the regulator. This sometimes requires interpretation or extrapolation of data that are not an exact fit. “It all goes to the importance of having a commonly understood set of definitions,” Sammells says.

But a common set of requirements will not result in a common platform from which to report to APRA. Not yet, anyway. Maybe the next big shift will be a technological one. But let’s hope that’s a few years away yet.

Life insurance is something almost all Australians would happily admit to knowing very little about. For the 3 per cent who suffer enduring mental illness or the 15 per cent who face episodes of common mental disorders, there is good reason for such nonchalance. Other than the basic life cover bundled in with employer superannuation, insurers have not been in a great rush to write life policies for individuals who are afflicted. To put it bluntly, sufferers of chronic depression, bipolar disorder or schizophrenia would be way off the acceptable risk spectrum for many insurers.

But attitudes have changed. As the taboo of suicide is given airing and as “the truth about mental health in Australia” is being addressed by Mental Health commissioner and former Australian Competition and Consumer Commission chair, Allan Fels, the grey spectre of disability has become a more solid form that cannot be ignored. Liberal Member of Parliament Andrew Robb’s book about suffering depression while involved with national policy is a vivid example of the futility of supressing a gruelling affliction. Mental health is on the national agenda and insurers are playing a part in making life more bearable for those who sometimes exist beneath roiling dark clouds.

Collaborative approach
It started in 2003 with a memorandum of understanding between the mental health sector, the Financial Services Council and the Financial Planning Association, to set out a collaborative approach to improving outcomes for sufferers. This was replaced by the Insurance Reform Advisory Group (IRAG), which includes Minister for Financial Services and Superannuation Bill Shorten, Mental Health Minister Mark Butler, depression-awareness body Beyondblue, the Insurance Council of Australia, Financial Planners Association, Institute of Actuaries and the Financial Services Council.

The IRAG first met in September 2011 and is seeking ways that government, insurers and the mental health sector can provide better insurance options to those who suffer from mental illness. One of the group’s objectives is to standardise mental health conditions for the insurance industry, which may indicate to what degree the issue had been swept under the carpet.

“We certainly don’t intend for IRAG to become an endless debating shop or write up some unworkable wish list, but it can be a useful and constructive way to bring industry and consumers together to help government drive meaningful reform,” Shorten said at the time. Butler declared the group would target “discrimination and stigma” as barriers that apply for insurance in the first instance or impede people from fully disclosing their illness, leading to inadequate cover.

Exclusions: medical, but not mental
People suffering from mental health conditions are not excluded from cover in group insurance contracts as long as they meet the eligibility test when they first start work with an employer, says Comminsure general manager of wholesale life, Claire Roberts. Exclusions can be put in place for a medical condition based on a person’s medical history, but mental health conditions are treated no differently to any other medical condition by the insurer, she says. The negative impact of illness can be minimised if early diagnosis leads to more effective treatment, and the government has acknowledged the importance of early intervention and optimal treatment via its introduction of the Mental Health Care Plan.

Individual health and wellbeing
Roberts says mental illness claims account for about 16 per cent of incidence and more than 28 per cent of claims cost across the Australian life insurance industry. Income protection and salary continuance payments associated with mental health disorders are expected to rise, she says, with the World Health Organisation forecasting an increase in disorders. Insurers will be judged on how they deal with this problem.

“Insurers can assist by understanding the individual’s specific circumstances and by working collaboratively with the individual and their treating professionals. The insurer can also fund rehabilitation assistance and return-to-work programs,” Roberts says, adding that research from the Australian Faculty of Occupational and Environmental Medicine shows work is an important part of an individual’s health and wellbeing. “It’s also about supporting community awareness around mental health,” she says.

Underwriters of life insurance know each case is different. During initial assessment they look at the duration of a condition, reoccurrences, risk of further reoccurrence and the cause, which could include grief or stress. What qualifies as a mental health disability may not always be a medical condition, says Toni-Ann Barnett, life risk analyst at Canstar. The main mental health afflictions affecting Australians are depression, anxiety, bipolar and post-natal depression, she says. When considering a case, underwriters will look at treatment, including medication, counselling and time off work. Some companies offer cover with a mental health exclusion; other companies look at the cause. An example could be someone stressed at work who has since changed employer.

Tell a story
Often people can hide conditions. No doubt there is overmedication in society, and all medical records are accessed during initial assessment and when claims are made. As more lives are insured, individuals who would not consider themselves as hampered by mental health issues but who have become used to taking antidepressants for whatever reason will have to face up to insurers’ interpretations of medical assessments.

Barnett has clear advice for individuals taking out life cover. “If you want cover and you have had a history of some form of mental illness, tell a story,” says Barnett, who has worked with advisers in previous roles. “Put as much down on paper as you can with your adviser, and put your case forward. We’ve certainly got some sad situations over the line and got these people covered.”

Targeting awareness
The life insurance industry is fully aware there is an underinsurance problem, Barnett says. “They want to get these people covered. There is a need there for all these families.”

The change in culture in the superannuation industry is also evident at the coalface, with staff education targeting awareness and strategies for dealing with policyholders who are afflicted. The call centre staff at REST industry fund have been trained in some cases by educators who themselves suffer mental health problems and who can explain their needs. “Sometimes we have issues where members threaten self-harm,” says REST chief operating officer, Paul Sayer, “and we have processes in place to deal with escalation of those processes.” Support for those in lower socioeconomic groups who suffer mental health issues is too often lacking, Sayer says, and those who threaten to do something to themselves sometimes eventuate to death claims. “That’s where training and support are valuable,” he says. “It’s in no one’s interest to have people self-harm. We want people to have a good life.” REST chief executive Damian Hill is the chair of SuperFriend, the mental health foundation established by industry funds to find ways to improve workplace conditions for members. One SuperFriend initiative is RUOK day in September, when it’s encouraged to give your colleagues a chance to open up about anything that could be troubling them. Many in the office need no excuse to divulge themselves, but it is the ones who push their problems deeper inside who are being silently encouraged on RUOK day.

Like REST, leading insurer AIA has invested in staff who are specialised in mental health and in the training of underwriting and claims staff. “We have regularly arranged meetings with specialist mental health organisations where people with mental health illnesses are invited to AIA Australia’s offices in order to give our underwriters and claims assessors a personal understanding of the day-to-day lives of people with mental health illnesses and how they cope,” says AIA Australia general manager of life insurance, Damien Mu. He says best results are achieved when an insurer works with a client’s health practitioners “in the provision of specialist staff, augmentation of rehabilitation options and coordinated approaches to return-to-work within an ethical framework”.

As insurers and the health sector set common objectives, some Australians will feel their lives slowly become less strained, and the clouds will begin to part.

But more compelling was that later, this revised process – which might have seemed more ‘mean spirited’ given the lower approval rates – really came into its own when I was asked to manage the invalidity claims of Tasmanian public-sector employees who had been affected by the Port Arthur massacre.

Critically, this is a story about how relying on “only” the letter of the law (PDSs, disclosure) does not either engage or inform those involved in the claims process. Unfortunately, in this risk-averse time, we appear to be heading in the wrong direction.

Starting my career as a young idealistic lawyer, I was captivated by how the words and processes of the law could deliver justice – for everyone. I then went to a state bank as a lawyer, running its corporate super fund, among other things. It was small enough to infuse a sense of fairness into the finer details of implementing processes. After a role in local government, I then became executive manager of advisory services at a Tasmanian public-sector fund.

After I’d been there about six months, the CEO noted that the approved total permanent disablement (TPD) claims were rising, asking me to become the board delegate and investigate.

Efficiency and justice are not conflicting goals
In this context, everyone mostly wanted to do the ‘fair thing’ but it turned out that different stakeholders had slightly different ideas about how to apply the rules. Hence, the progressive drift into more approved claims. Had their respective understandings been tested?

Employers were the stakeholders most concerned about changes to the process. It took many meetings, sharing concerns and putting the claims process into the context of employer (government) funding a defined-benefit scheme and the impact on member fees before the employers started feeling that – while not overly comfortable with the changes – at least they understood what they were and why they were occurring. The medical practitioners, while not affected by the changes, were grateful to put a face to the fund and have someone explain the technicalities of the process – for the first time!

The most confronting part of the stakeholder-consultation process was visiting, in their own homes, those members who had either been denied or granted a disability benefit. I wanted to find out whether these members understood why their benefit had been denied (if applicable), and, for all, whether they understood the process, forms and the language.

From the visits, I gleaned the following insights and we implemented these changes:
• The language of the forms was not understood. Simpler explanations (while referring back to the longer definitions) were included and tested in the field with real members.
• Member communications about insurance were changed.
• Members wanted to be able to speak with one person – not an anonymous contact centre.
• Because the staff were involved in visiting the members, a set of listening tools and an insurance lexicon was drawn up and used.
• For those members who had been denied a claim, they wished to know the reason. The fund, while realising this may affect subsequent court action, included clear reasons in all denials of claims – tailored to the actual situation rather than pro-forma ‘reasons’ from some menu – reducing reviews of claims.
• Everyone had to be working off the same song sheet about the definitions and processes.

Compassion without clarity, while well intentioned, can lead to misunderstandings which, in turn, can contribute to a deterioration of the very conditions being dealt with (“the process of making a claim was such a trauma it made me worse”).

Approved claims were halved while also reducing thecalls for reviews.

The secret here is simple: telling is no substitute for informing. When someone is ‘informed’, it means they actually understand, and this can be confirmed by checking if they pursue actions consistent with that understanding.

Process under pressure
On a sunny day in April 1996, Martin Bryant went into the Port Arthur historic site and killed 35 people and wounded 23 people. I was asked by the CEO to personally manage the invalidity claims from the 16 or so public-sector employees who were at the Port Arthur site when the massacre occurred.

I can still remember going into a room near the Port Arthur site to see a group of people – the claimants and union officials. Some of them had witnessed the shooting and some had also lost family or friends.

It was a very different situation to an individual claim. All of them were in deep shock – and moving around the room together, like a clan of people sticking together to ease the pain.

How to gain an understanding of the invalidity claims process in this situation? Remember that this was amidst a general sense of shock. Today, this part alone may well have had a threefold engagement by professionals: the claim-process people, the grief counsellors and the communications and public-relations experts who would help ‘frame’ the situation for the major stakeholders. Of course, the claimants were also separately seeing medical and counselling professionals.

In the context of those government employees affected, there was the initial challenge of forming a bond of trust. It was both for the claimants and myself a time of listening, reiteration and, for me, gradually gaining trust from the group over many meetings. It took time, but once trust was established, the group began to dissolve into sub-groups and then individuals. Finally, people wanted to resolve their own situation and sign the form. This was part of their grieving process. Individuals – or twos and threes from the group – would come to sign the forms.

A critical and special moment for me was when again explaining the options to one lady and she panicked and said “I just don’t understand”. I asked her gently to relay what she thought she understood. She progressively outlined each of her options, and I was able to say – to her amazement – yes, you have that right.

In a highly traumatised and politically sensitive situation, the claimants were listened to, their cases personalised and the forms were signed without any complaint either from the individuals or the media.

Thus, rather than split ‘claims’ (via insurance), ‘grief’ (via counsellors), and ‘political impact’ (via spin doctors), there was a momentum to resolution that achieved the result – a social recognition of personal loss articulated through an informed view of what was feasible, fair and focused on the individual.

Damian Hill, chief executive officer of REST Industry Super, told the summit that his fund was “looking to take advantage” of the opportunity to include innovative insurance options in its MySuper product.

Insurance was part of the “value proposition” of MySuper, and there was some flexibility on what funds could offer.

Vanilla or chocolate chip?

As part of the government’s Stronger Super reforms, it announced that all APRA-regulated funds would be required to offer life and total permanent- disability cover, and it would be left to the trustee’s discretion whether to offer income protection.

From July 2013, MySuper products will be required to offer a standard default level of life and total permanent-disability insurance, and members will be able to increase or decrease their cover without having to leave the product.

“Differentiating on investment in MySuper is hard to do,” said Hill. “But insurance is a rich area, which will almost be open slather in terms of differentiation. Will it be vanilla or chocolate chip? There are opportunities in the market to major changes.”

Ahead of the curve

Melanie Evans, the head of superannuation and retail at BT Financial Group, told the summit that BT had changed its view of insurance in default plans and would be introducing default insurance to all members “in the next month”.

Beyond default, there was the possibility of customising insurance and designing insurance products “for people who are not the average.”

“You can put your head in the sand or you can forward,” Evans said.

“There’s a whole legislative change coming to the industry and you have to stay ahead of the curve.”

Cost-based reasons

Ian Fryer, head of research at Chant West, told the summit that default income-protection cover, for example, was one way to begin engaging with fund members on the issue of insurance products.

“If people have some level of IP cover, you can at least talk about it and ask if it is enough,” said Fryer.

The Conexus Financial survey in advance of the summit asked respondents if their MySuper product would include default income protection alongside death and total permanent-disablement insurance.

The responses revealed a split, with 45 per cent registering “no” and 55 per cent “yes.” The reasons given for not providing default IP cover were mostly cost-based. Respondents saw it as a personal decision and one that could not be aligned with reasonable salary levels as a default product.

Weatherhead says a combination of tightened regulation from the Australian Prudential Regulatory Authority (APRA), along with the provisions of the new MySuper legislation, will make insurance a key issue for funds.

“Super funds have had benefit designs in place but they will have to reassess them based on the fact that they are designing specifically for MySuper,” Weatherhead said in a telephone interview.

“Insurance is a very important part of the MySuper equation. Some funds don’t include TPD (total permanent disablement) insurance, and they will have to do that in future.”

Standard moves

Weatherhead noted that under the new APRA standards, trustees will be required to have a “reasonable and well documented basis” for setting default levels of cover.

“This is an area that hasn’t been well documented, so when it comes up for inspection from APRA I think some funds are going to have some work to do to ensure that it passes must,” he said.

“Many funds are ill prepared for this, just as many of them are ill prepared for issues such as the maintenance of insurance data.”

Weatherhead said that funds would need to maintain detailed insurance records for at least five years, but many had “scant data” beyond the past year.

Balancing act

Another key issue was the provision of income-protection insurance, with MySuper presenting an opportunity for funds to offer it as a default.

“One of the requirements is that trustees will have to balance the cost of insurance against the impact on the retirement benefit and, while they have been doing that anyway, that will have to be formalised,” said Weatherhead.

“It’s a balancing act for trustees. They want members to be protected if they are sick and can’t work, but on the other had they don’t want to inappropriately reduce their retirement benefits.”

Insurance is one area where funds will be able to differentiate themselves in the design of their MySuper products, although Rice Warner does not see this being a major factor in the default-product market.

“Our view is that trustees will see the benefits of a single structure in the market, but that is a contrary view to some others,” said Weatherhead.

“Some see it as an opportunity to compete, because under MySuper you won’t be able to compete on much else.”

Richard Weatherhead is a panellist at Conexus Financial’s Group Insurance Summit to be held at the Hilton Sydney on September 3.

While Health Super and First State Super boasted a “cultural and strategic fit” when the two funds first announced a merger at the end of 2010, they still had a lot of work to do to join the two plans together.

Twenty months or so on from the announcement, getting members on the same page in terms of their insurance coverage has been among the biggest challenges resulting from the combination, Michael Dwyer, First State chief executive, says.

The task of combining insurance plans and making sure all 750,000 members had at least equal or better coverage under the combined scheme’s new plan meant setting up a separate working group and hiring actuary Rice Warner to advise specifically on the task.

Shades of difference

Among the sticking points, Health Super provided income protection as part of its default coverage, whereas First State had death coverage and total and permanent disability (TPD) as default with income protection optional. Health Super had automatic salary continuance, whereas First Super had an opt-in arrangement.

Also, Health Super’s mainly contract and part-time staff made certain provisions like sick leave redundant, whereas First State’s members, comprising of the New South Wales public service including health workers, police and teachers, relied heavily on such provisions.

Despite what Dwyer describes as the “light blue collar” similarities in the two super funds’ membership profiles, he says, when it comes down to it, the differences between plans can be significant.

The approach CommInsure takes with funds in a merger or successor fund transfer situation, according to head of industry funds Frank Crapis, is to assess the levels of risk associated with the new profile, review the benefits and levels of cover to determine if it’s still appropriate to the majority of members and offer options to help manage price.

“For example, we may suggest separate categories to address the insurance risk, that is, heavy blue, blue, white and professional occupation categories,” he says. “This ensures that the right risk is in the correct category. Sometimes the occupation classification can be difficult to obtain. In these instances, the categories can be based on the participating employer type or by asking the member for qualifying questions upon first becoming a member of the fund, such as questions on salary, sedentary nature of the work and university qualifications.”