The Australian Securities and Investments Commission (ASIC) yesterday released a report on measuring the value for money that Australians receive from default insurance provided by their superannuation funds. The goal is to improve trustee practices around insurance in superannuation.
At present, superannuation trustees must offer default death and permanent incapacity insurance benefits on an opt-out basis to most members in a MySuper product. Many trustees also choose to offer default insurance to members in choice superannuation products.
MySuper is a superannuation initiative by the Australian government, offering simple and cost-effective default superannuation products for Australian workers who have not selected a super fund. A choice fund is a super fund which an employee chooses for receiving employer-paid contributions.
ASIC’s new report “Default insurance in superannuation: Member value for money” explores metrics that can help superannuation trustees analyse the value for money of default insurance and deliver better outcomes for members.
In producing the report, ASIC considered publicly available data on default insurance offered by 20 large MySuper products, which at 30 June 2020, covered 82% of MySuper member accounts.
ASIC also used its compulsory information gathering powers to obtain more granular data from a sample of 11 mostly large superannuation trustees for a six-year period (FY 2013-14 to FY 2018 19). These trustees held an estimated 40% of superannuation accounts with insurance at 30 June 2019.
ASIC Commissioner Danielle Press said, ‘Many Australians hold life insurance through their super fund. Almost 10m superannuation accounts have insurance attached, and a majority have the default insurance offered by the fund. The decisions superannuation trustees make about default insurance arrangements are important because most fund members stay with the default.
‘The findings in ASIC’s report will help trustees take meaningful steps to enhance member outcomes and to meet their existing and new regulatory obligations. These include the member outcomes assessments overseen by APRA and the design and distribution obligations (DDO) overseen by ASIC, which commence in October 2021,’ she said.
The report highlights that:
There is wide variation in default cover offered. Across MySuper products, ASIC found a large amount of variation in the types and level of default cover. For example, some large MySuper products offered over 20 times as much default cover as others. The premiums members paid for default cover also varied widely. Differences in price are partly due to different levels of cover, but also other factors including the average risk level of the membership and the generosity of terms and conditions.
Different cohorts of members can receive different outcomes. ASIC’s analysis of detailed insurance claims data provided by trustees identified that some cohorts of members with default insurance, such as younger members and those in insurance policies with more restrictive terms and conditions, may be receiving relatively low value. Such outcomes raise questions about the appropriateness of the default insurance design and fairness between groups of members.
Trustees found providing member insurance data challenging. Some trustees were unable to properly identify which members had default insurance, and some struggled to explain patterns in the data they provided to ASIC. Those with the most complicated insurance designs and product structures tended to face the most issues.
Ms Press said, “Trustees play a pivotal role in designing default cover and negotiating with insurers on behalf of their members. I encourage trustees to examine the outcomes they are delivering to members through default insurance and to proactively consider how to deliver value for money in a way that is financially sustainable.”