In what SuperRatings has called its “most comprehensive analysis of insurance data to date”, the Lonsec-owned researcher found that there is a significant divergence between experience of the various superannuation sectors in regard to insurance premiums.
“Whilst the findings show that overall, the average superannuation fund Death and TPD insurance premium is only slightly higher in 2014 than it was in 2011, the research illustrates a substantial divergence between the sectors of the industry though, with Not for Profit funds suffering overall increases compared to their Retail Master Trust or Corporate Fund peers, whereby premiums declined over the three year period,” said a statement from SuperRatings reflecting on the data, gathered from more than 390 super products representing 150 super funds.
“The disparity between sectors is vast, with Not for Profit superannuation funds bearing the brunt of the re-ratings, averaging a 22.4 per cent increase over this time,” the statement continued.
“Retail Master Trusts, however, experienced an average decrease in premiums of 2.3 per cent, whilst Corporate Funds fared far better than their peers, passing on an average 4.4 per cent decrease over the three year period.”
The bad news for not-for-profits did not stop there, with the research suggesting that of the funds that did experience a premium increase, not-for-profits were again “hit the hardest”.
The research attributes the disparity largely to the “captive membership” of retail and corporate funds, which has aided the ability to “attract on average a decline in insurance premiums over the same period”.
SuperRatings executive manager, consulting, Wendy Tse, said the strategic decisions by some funds to actively seek more attractive “insurance benefits” has backfired in some cases.
“Many funds have strived to provide the most attractive insurance benefits possible, offering the highest levels of cover, incorporating broader definitions of disablement and requiring minimal underwriting to ensure as many members can obtain insurance as possible,” Ms Tse explained.
“Whilst this is a valiant attempt to act in members’ best interests, it has potentially worsened claims experience and pay-out ratios, adding further fuel to an already challenging environment.”
Ms Tse said the superannuation industry requires a “significant shift in thinking”, whereby funds consider their overall insurance design and re-evaluate overly generous ‘automatic acceptance limit’ provisions.
