The outlook for group insurance

Group insurance roundtable

Part 1: New data rules forge missing link between insurance and super
Part 2: Can MySuper timeframes actually be met?
Part 3: The search for common standards on terminology and data
Part 4: Stronger Super - auto-consolidation or auto-confiscation?
Part 5: The post-election prospects for Stronger Super
Part 6: The outlook for group insurance
Part 7: Making funds transparent on insurance premium rises

Amid the current regulatory upheavals, a Super Review roundtable considers the outlook for the group insurance market.

Mike Taylor, managing editor, Super Review: It appears it would be nothing they would rush through anyway. It’s a pretty complex area and there’s going to have be a settling-in period anyway for what’s already there, because clearly you guys are all in your own way still closing off all the things you need to close off so that it works.  

I guess at another level, though, we are now in an environment where premiums are a bit high, the market is a bit different, mandates are an interesting place.

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So I’m going to throw this one to Alex, because he would always be looking at group insurance and what it’s going to mean to his members. What’s your impression of the market at the moment, Alex? 

Alex Hutchison, CEO, Energy Industry Super: Well, Jenny and TAL would be happy to know, and we are actually happier with our experience with TAL. 

We do understand that premiums are increasing.

It does come down to the claims experience on that book of business, and that’s where something which is the gist of the conversation today is very true: the better the data, the less price shock you are going to have to an extent, because at the end of the day the biggest factor really should be your experience on your book - and that will always come down to the quality of your data and the history you have there.  

I think we are coming out of a price war. Let’s be honest, there are a number of companies that went toe to toe with each other over a number of years to get share of wallet and we’re probably coming out the other side now. 

Also, there’s just the natural factor: books of businesses are ageing with the population. So that’s my explanation. 

Mike Taylor, Super Review: Geoff, you’re a student of that dynamic. 

Geoff McRae, senior analyst, Rice Warner: Yes, I guess the most surprising thing about this, and perhaps something that will be addressed by these new data and reporting requirements, has been that some funds have big shocks. 

There was one particular fund last year that came up to three-year renewal and the insurer came to them six weeks before, having been telling them that the experience was pretty good, and they said, “We’re giving you some notice in advance that there’s going to be a significant hike in premium rates, but there’ll be no foreshadowing of that in advance”. 

Under these new reporting requirements where the insurer is going to have to give a regular update on how the fund is travelling with claims experience, we won’t have those sorts of experience, which I think will be better for everyone. 

It doesn’t mean there won’t be increases, but at least it won’t come as a surprise, because in that case the rates went up across the board 45 per cent.

The claims had been running badly for quite some time, and yet there was this so-called annual catch-up between the insurer and the fund.

The fund had been getting the story, “Oh, you’ve been paying quite a few claims but things aren’t doing too badly”, so they thought things were going well. 

Adam Kirk, general manager, distribution, Australian Ethical: We actually ran a tender mid-last year for Australian Ethical.

We’re in a fortunate position in that we have no unidentified clients, so we have a really engaged clientele, and that allowed us to have the data that we needed.

We were actually able to get a 7.5 per cent reduction in death and TPD and a 15 per cent reduction in salary continuance insurance – and that comes down a little bit to the data that we’ve been able to retain and the fact that there are no unidentified clients there. 

Mike Taylor, Super Review: So it really is going to change the commercial environment, isn’t it, because I can think back to the group insurance market over the last 10 years and I’m a journalist.

I can say, well, there was all this loss-leading going on and it showed up later in some CEO departures. 

But if the new prudential requirements and things that APRA are putting out there will lift the bar on standards ...

As to what Geoff was saying, that really does change the ballgame, it changes the commercial environment, doesn’t it, because there’s more transparency about why premiums are where they are and how long they are likely to be there, is that right? 

Jenny Oliver, group life, commercial manager, TAL: Absolutely. The increased transparency means trustees are far more interested now in terms of how their insurance is performing, what are the drivers of the performance.  

We’re having quite sophisticated conversations now with a lot of our trustees around what’s driving performance, what the components of price are, [and fostering] that understanding around claims experience being the single largest driver of the price.  

So I think the data standards conversation is really driving some great conversations and good outcomes for the members.

As Geoff said, if we can drive good strong data to make really good strong decisions, it’s a better outcome for the member, and it should lead to less shocks in the prices, which is a win-win for everybody I think. 

Adam Kirk, Australian Ethical: You get the right information up-front, though. You can run a better tender and give more accurate data – and therefore there shouldn’t be that huge shock in three years time. 

Jenny Oliver, TAL: Absolutely. And it’s also the transparency throughout the relationship as well in terms of how claims experience is performing over the three-year period. 

It shouldn’t be a set-and-forget exercise; you should be able to monitor it and report back that performance throughout the period so you can make decisions part-way through. 

Adam Kirk, Australian Ethical: Yeah, it should be a collaboration between the two. 

Geoff McRae, Rice Warner: Yeah, there was no greater issue in this case. It was a case of loss-leading early, in that on major tenders we do a few quick checks of the numbers. And we’d advise the trustee before they appointed this insurer that in fact we felt the rates were a lot lower than they should be. 

We suggested the decreases that they were charging members were some 40 per cent, if they took the rates that had been quoted. 

We said, “Well, you can do that, but you are going to have a shock probably in three years time. Why don’t you take a middle road, with reducing part-way and perhaps keeping some of the other inner reserve in case there is a problem. 

But they said, “Oh, we wouldn’t be doing justice for members if we didn’t give them the whole”, so they set themselves up to some degree in that they would take the whole premium reduction for the members. 

And now it’s going back up to where it should’ve been, if you like. But although the members don’t ever say thank you for premiums going down, it will certainly be a pain when they go up. 

Jeff Scott, executive manager, business growth services, CommInsure: Do you think that the focus that the members have on premiums is as strong as the focus the members have on investment performance?

My point of view is that even a 30 or 40 or 60 per cent increase in premiums does not get the same reaction from a member as a 1 or 2 per cent change in their investment performance.