One senses that for the Cooper review panel, insurance was a bit too hard.
As a consequence, we now find insurance just falling into the MySuper piece, without a proper hearing and due consideration of the effect.
This is one case where seemingly little action can have a wide-ranging impact, which could well have more downside than up. ‘Universal Fund’ or ‘MySuper’, the outcome will be the same.
Superannuation fund trustees will determine the default level of insurance cover for their MySuper accounts, with members free to opt out of cover.
Most public offer/multi-employer funds wanting to compete in this market already provide good levels of default cover to new employees, with the ability to opt out. This, at face value, would therefore not appear to present a problem for trustees.
It would seem that making an investment choice in the employer’s default fund would constitute choice. Any employee who does not specifically exercise choice must be set up in the MySuper section of a superannuation fund.
However, it is not yet clear what an employee, who is happy to have what the employer has had as their default investment option and/or insurance cover, needs to do to stay with the employer’s fund and to not be moved to MySuper.
There are thousands of employers who went to great lengths to choose their default fund under the choice legislation, ensuring the quality insurance cover they had already established for their employees was retained.
Unfortunately, however, partly because of apathy we know a very low percentage of super fund members make an investment or insurance choice.
It is not unreasonable to assume the introduction of MySuper is hardly likely to change the general apathy of Australians towards super and insurance.
In fact, it may actually increase it, particularly if they assume the government has it all sorted for them.
Coupled with this, employers in general, having divested most of their superannuation communication responsibilities, are unlikely to want to return their focus to encouraging employees to elect their default option.
Yet, what will be the consequence if far fewer new employees are joining the special insurance arrangements established by many employers throughout Australia?
Even assuming (and this is not yet clear) that it is only new, and not existing, employees who will fall under the constraints of MySuper, a fairly quick shift will occur in the membership of employer-established insurance arrangements.
The impacts will be numerous, adversely affecting members, trustees, administrators, insurers and reinsurers alike.
The level of underinsurance is very likely to increase as employees miss out on what is often higher and quite possibly more appropriately designed cover automatically available through their employer-established arrangement.
Insurers and reinsurers will become equally concerned about the changing balance of their risk. It would be reasonable for them to assume those most likely to claim will make an active choice to stay with the employer fund offering better automatic cover.
Also, they will see the membership numbers declining and will look at reducing, or more likely removing, automatic acceptance levels and cancelling rate guarantee arrangements.
This will adversely affect both those employees who have, and new employees who would otherwise have, elected the employer default arrangement going forward.
Over time, we will see the dismantling of employer insurance arrangements because they are no longer sustainable.
There will also be significant impact on administrators and trustees who ultimately bear the responsibility for members and the management of their superannuation.
Any of the large superannuation fund administrators will acknowledge the challenge they already have in administering complex insurance arrangements.
The introduction of MySuper alone will represent a significant increase in the workload of trustees and administrators.
Add to that the fallout from insurance issues that are likely to arise and it is hard to see how they will manage.
One only has to imagine the number of grandfathering requests to get a sense of what lies ahead.
