Will the one per cent work?

Super Review conducted its annual roundtable at the Conference of Major Superannuation Funds in March and found that superannuation funds continued to face a range of challenging issues in 2018, from insurance inside superannuation to the evolution of post-retirement products.

Roundtable participants:

• Mike Taylor, Managing Editor, Super Review
• Eva Scheerlinck, CEO, Australian Institute of Superannuation Trustees
• Raewyn Williams, Managing Director, Research, Parametric
• Andrew Proebstl, CEO, legalsuper
• Brian Zanker, Business Development Leader, Mercer
• Nick Callil, Head of Retirement Incomes, Willis Towers Watson
• Frank Crapis, Head of Life Product, Comminsure
• Geoff Brooks, Head of Marketing, Equipsuper

Superannuation funds are more than willing to sign up to the insurance inside super code of conduct but many have concerns about the one per cent cost factor.

MT:        Let’s talk about insurance inside super and I think it’s interesting that Jim Minto and Co made a very valid point the other day which is all this talk about it being compulsory when the only person who can really add compulsion is the Minister, and that’s probably not what we want anyway. So, Eva, it [the consultative process] was like herding cats wasn't it?

ES:          It was yeah, it was a process I don't really want to repeat in a hurry.

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I think we’ve been criticised for taking a really long time to come up with the code, but I think just over a year is pretty quick when you’re trying to resolve concerns held by the Minister who’s getting letters from her constituents, and then the different regulators, and then the stories that we’ve all seen on Four Corners and that sort of thing because you’re right, people don't differentiate between insurance outside of super and insurance inside super, it’s all insurance and it’s all bad. So, it’s been a long process.

It is the first time the different sectors of the industry have worked together on insurance like this and including the insurers in the process. Did we end up with a code that IRs team would’ve wanted? No. Did the FSC end up with the code they would’ve wanted? No. So, this is a negotiated instrument and we did as well as we could and it’s a first step and it’s voluntary.

MT:        And Frank, good first step?

FC:          Yeah, I mean the principles of the code are well established and well set out. So, in terms of there needing to be levels of cover that are appropriate and affordable so that it doesn't erode members’ balances, I think they’re good principles to have an industry aligning to.

And then how do we design products and services to meet that and ensure that it does protect its small account balances. I think it’s a step in the right direction. We’ve got the FSC code as well and I think both codes together I think set out a good intent. 

MT:        Andrew, are you going to have any trouble signing up?

AP:         No, no, we’re a fund for those working in the legal sector [so] we’re generally fairly compliant so –

AP:         But that’s more than the average fund. 

GB:         Compliant as opposed to pushovers, yeah. 

AP:         So, no I think it’s a constructive and a good proactive move for the industry to do all the work that’s been done, and there’s been a bit of froth and bubble from some funds about different elements of the code, but the reality is in principle it’s a good initiative and it’s much better for the industry to take and to be seen to be taking the steps that it’s taking to put the code in place rather than have something imposed by government. 

GB:         Yeah, we’ll be signing up to it. I think the principles are generally good. As Andrew was saying there’s some nuances around it and implementation will be another question, but in principle we support it.

NC:         Yeah, one of the points of detail we’ve spent a bit of time with that is the one per cent salary cap, and there are funds for whom – we all know there’s a balancing act but there are some funds for whom that cap, if they meet it, will lead towards arguably inadequate insurance for higher risk individuals.

So, people on gas rigs in Bass Strait sort of thing, that one per cent doesn't buy them much because they’re higher risk. So, you’re sort of left with well if we keep to that we’re going to default them into something that someone could argue is inadequate. So, balancing between inappropriately eroding balances and not enough default insurance is a tricky one. There’s no magic number, but just to flag that the one per cent will lead to that for some funds. Funds can elect to embrace the whole policy but still opt out of particular ones, and there may be some for whom the one per cent isn't something that they think is in the best interests of them –

GB:         And that would apply to us, we’ve got people in blue collar resources and energy and that would apply to a lot of members in there. So, they’re like the nuances I was referring to. 

ES:          Yeah, and we’ve had that feedback from some members who say, “We will sign up to the code, but we won’t to do the cap because we think it’s not in the best interests of our members and we’re comfortable about how we explain it and -

FC:          Yeah, and I think it’s also better access to the data so that you can understand what the salary, earnings and also the membership profile are. I think it’ll lead the industry funds and insurers to be able to capture better data and that will help us designing better products and better offerings to those members. And whilst there are those challenges I think it’ll lead us towards better understanding and trying to get the data to better understand the profile of the insurer. 

NC:         Good point. Dealing with a lot of data with a lot of funds, a lot of them don't have salaries.  So, the starting point is how are we going to do that? So, you might be in a better position with DB members, but a lot of funds just don't have that data to even –

BZ:          From my perspective I think the more of a spotlight and a lens that you have on insurance the better in super. Most members don't understand it. So, the clearer that we as an industry can be about it the better off we are and the more standards you can have around it. So, from my perspective I think it’s a good thing. There are nuances and I think different funds will have to adapt to those differently, but when you stop and think about it the more we make these confined boundaries that every fund has to sit in, it makes them all start to look even more alike in the industry. 

GB:         And it’s not insignificant implementation to ask your online admin systems and that, they have to look at these sort of things, like examining capital insurance and that sort of thing, there is a significant amount of work there and investment.