In respect of insurance policies for individuals, the introduction of the requirement for statements of advice, under the Financial Services Refom Act, paved the way for the production of retail insurance comparators by research houses. This, of course, resulted in market pressure on retail insurers to regularly update and improve their offering. That aside, however, the comparators clearly assist the financial advice and planning fraternity, which, in many cases, doesn’t have the time or infrastructure to conduct regular detailed analysis of all the retail insurance offerings in the market.
The success with retail insurance has more recently seen the evolution of similar insurance comparators for group insurance, as research houses undertake comparisons of superannuation funds. It is, however, important to note that group insurance is vastly different to retail insurance.
Trustees need to make group insurance arrangements for their fund that are appropriate for, and in the best interests of, their members. No two fund membership profiles are the same and it is important each fund’s group insurance arrangements are tailored to the trustee’s objectives for its members. Basing group insurance design on what other funds have apparently negotiated, for example, in respect of default levels of cover provided under automatic acceptance, may not necessarily be in the best interest of members. The amount of cover provided automatically without any underwriting has direct implications for a fund’s current and future premiums.
Group insurance arrangements are very fund specific. Hence, they are usually established only after an in-depth tender process, generally conducted by group insurance specialists who have spent considerable time understanding the nuances and vagaries of the group market. Insurance offerings of superannuation funds are becoming far more sophisticated, so considerable tailoring of group policies is usually required to meet trustee requirements and to ensure the negotiated terms are complementary to the fund’s administration.
Group insurers are generally very willing to work with trustees to provide a group policy and procedures appropriate for the fund’s membership and administration arrangements. Product features and price do not provide a sufficient basis for breaking a fund’s group insurance offering down to a single number. The underlying wording in relation to a single feature can vary considerably between any two policies, resulting in quite different outcomes.
Employers choosing a default fund will compare multi-employer funds, which include both industry funds and master trusts. Simply comparing pricing across a range of such funds masks a whole range of complexities, which need to be understood in detail before any true comparison can be made. Many funds will have unisex rates for the default cover and gender rates for any additional cover, while others will use male and female rates across all cover, including the default. Some funds will rate default cover according to occupations and others will not.
Individuals seeking to exercise choice of fund will also compare offerings. However, sometimes there may be a better rate available than is shown in comparators if some added information, for example, occupational detail, is provided about the member seeking cover. It may take very little effort on the part of an individual to get a more competitive rate from a fund they may have otherwise rejected on the basis of the simplistic information provided in a comparator.
It would be unfortunate if trustees considering their insurance arrangements, employers considering default funds or individuals seeking to exercise choice were to become overly reliant on group insurance comparators. As we start to see as much as 40 per cent of superannuation funds’ weighting being given to insurance, it is timely to consider their limitations.
