There are two major components of superannuation – one being provision for retirement through investment of retirement savings, and the other protection through insurance just in case everything doesn’t go as planned along the way. Sadly, the latter has long been considered the poor cousin of the superannuation industry. Insurance is now, however, being better recognised by trustees as a very important component of their fund’s offerings. The recent good work undertaken by the industry on the underinsurance of Australians further highlights the importance of insurance as a superannuation fund member benefit.
Tendering for an insurer always creates plenty of market interest, and might in many ways be considered the glamour side of the insurance business. That is, if any of us in this industry may be so bold as to even suggest there is anything glamorous about insurance. But when the dust settles from all the glossy presentations and beauty parades, can the trustee be sure that all is well with their members’ insurance and there aren’t problems waiting to come out of the woodwork?
Slowly the drive for improved technology, and most specifically electronic underwriting, is filtering through to group insurance. There is an ongoing push from various quarters for less onerous underwriting and improvement in the process and outcome of the assessment of claims. Improved efficiency in the underwriting and claims processes is a plus for all stakeholders, not least of all the members themselves.
It is important, however, that trustees don’t lose sight of the fact insurance will only continue to work if there is a degree of profit to be made by those insuring the risk. Pushing the envelope too far in trying to get everyone accepted for large amounts of cover and minimising the claims assessment process has its pitfalls. The potential is there to cause significant losses for the insurer. The result will be insurers, generally, becoming more conservative and increasing premiums. Ultimately this could bring undone the opportunity for Australians to have cost-effective insurance cover under their superannuation fund’s group insurance policy with little or no effort on their part.
The very basic principle of insurance is heavy claims experience will lead to increased pricing. Some members and/or employers may find themselves in a position down the track that, while the level of cover they have is what they need, they can no longer afford to pay the premiums to maintain it. Even if those premiums are coming out of their 9 per cent superannuation guarantee contributions paid by their employer, they will be significantly diminishing their retirement account balance in the process. The best results are attained for members when insurance arrangements are treated as a partnership between the trustee and the insurer, and each party is taking a long-term, as well as a short-term, view.
Unfortunately, while improved technology for group insurance is a real positive, the topical focus is not on the area where it is most sorely needed. Being the poor cousin in an industry that has been driven by investment and a focus on funds under management, group insurance to some degree missed the boat when superannuation administration platforms were being designed. There was generally insufficient appreciation of the vagaries of group insurance and the operational functionality required specific to its administration. The result has been that considerable operational risk abounds in the administration of insurance of many superannuation funds. Most superannuation administrators would readily admit a high percentage of their time is occupied by insurance matters, whether they be basic administration issues or trying to accommodate enhanced insured benefit arrangements.
The importance of having the correct amount of insured benefit showing on a member’s benefit statement, and the correct amount of premiums being deducted for the level of insured benefits being provided, becomes all too clear at claim time.
It will be a good outcome for all if the increased focus the Australian Prudential Regulation Authority is placing on the administration of insurance, as part of its prudential review of superannuation funds, brings about an increased awareness of the importance of operational excellence when it comes to insurance.
