Insurance in a MySuper world

The advent of MySuper has made it harder for superannuation funds to differentiate their offerings but, as Damon Taylor reports, the appropriate insurance offering can still help funds stand out from the crowd. 

As MySuper ushers in a new superannuation environment for Australia, many industry pundits have been left wondering where exactly super funds’ competitive advantage will lie.  

But where investment, fees and even performance may prove difficult for members to pick and choose from, Brett Clark, CEO for TAL Life, believes insurance may provide funds with a true point of differentiation. 

“From my perspective, MySuper has really validated the importance of insurance inside superannuation,” he said. “Within the MySuper framework, you’ve got death and TPD (total permanent disability) that now have to be provided on an opt-out basis and funds need to put a formal insurance strategy in place. 

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“That framework really takes a lot of the thinking that has been going into trustees’ insurance offers and validates that and puts additional import around it,” Clark continued.

“And, as a consequence, I actually think there is more customisation and more tailoring going on within the insurance to reflect member demographics than there is for investments.  

“So while the MySuper framework appears to create a more vanilla offering across investment options, insurance is one area where trustees can and are differentiating and tailoring their offering.” 

Indeed for Mike Goodall, head of distribution, Australia for MetLife, MySuper has presented super funds with an opportunity not only to review existing offers but to innovate as well. 

“Clearly, MySuper has increased the expectation on the fund trustee to ensure that the appropriate default levels of insurance are in place,” he said. “And that focus by fund trustees has meant there’s been a higher level of activity in funds going to tender. 

“They’re taking the opportunity to review the entire insurance design, ensuring that they’ve not only got the appropriate levels of cover but also that the right insurance partner is associated with their fund for the best possible member experience,” Goodall continued. 

“Important questions are being asked, such as whether cash is necessarily the best form of benefit? Are there other benefits such as rehabilitation and getting them back to work that are of equal or greater value? Are current default insurance scales aligned with typical needs? Is the current insurance design eroding the retirement benefits too greatly? 

“Put simply, MySuper has forced people to think about insurance much more than they would have previously.” 

Of course, one of the more interesting trends in MySuper products has been the development of a lifecycle or life stages approach to investment. Members transition in and out of certain options according to their age and the demographic of their fund.  

However for Damien Mu, general manager, Life Insurance for AIA Australia, such an approach is no less useful in insurance. 

“Some trustees have already moved to a life stages approach,” he said. “So that’s generally where cover starts lower at younger ages, peaks during the 30s and 40s, before tapering off into the 50s and 60s. 

“But we believe that as an industry we need to work harder to refine this to ensure that, depending on your life stage and factors, you have the appropriate level of cover,” Mu continued.

“It’s also critical though that benefits are viewed in isolation - so death cover needs, for instance, change in a quite different way to TPD cover needs. 

“And irrespective of approach, those are fundamental differences that should not be overlooked.” 

Adding further detail to the description given by Mu, Goodall said that one of MetLife’s client funds had implemented a lifecycle insurance option as early on as 2012. 

“And what they’ve attempted to do is match the average member’s needs as they age,” he said. “So, for instance, in younger lives, 16 to 21, you get one unit of death cover because its generally viewed that they don’t really have dependents, but you can also get three units of TPD if disabled to provide for the cost of living. 

“The next bracket of 22 to 26, we see an increase in cover in line with people starting to have commitments like marriage, children, mortgages and so on,” Goodall continued.

“So the default can jump to three units of death and five units of TPD, and then as we get from 27-plus, we’re seeing offered as default six units of death and TPD, which provides a higher base level of cover that can then reduce each year. 

“And then of course it washes down to provide less cover when you get to about age 69, but this sort of default design structure, in line with a typical person’s life journey if you like, is something we’re already seeing used to great effect.” 

Naturally, the motivation behind such efforts is greater customisation but for Clark, full credit must go to super funds, their trustees and senior management. 

“A great deal of work has gone into tailoring insurance offers that transition and change as members move through different stages of their life,” he said.

“Where an adviser is involved within the retail superannuation fund space, that process is more active and more dynamic, but outside of the retail space, even in the default covers within industry funds, trustees are and have done a fantastic job in tailoring cover so that the benefit levels do flex with members’ life stages. 

“And it’s something I think we’ll see more of in the future, not less.” 

Yet while super industry executives have been preoccupied with the legislative burden represented by MySuper, SuperStream and countless other requirements, insurance providers have been anything but idle.  

Indeed for Goodall, 2013 was a year where super fund support was the first order of business, but business realignment rapidly became a close second. 

“The focus for us, and I guess most insurers over the last 12 months, outside of MySuper, has really been about managing and limiting the negative claims impact that we’ve seen as a result of the sharp increase in TPD and disability incident rates overall,” he said.

“And that’s got a lot of press, it’s got a lot of exposure certainly and discussion within the industry. 

“The consequences of the current discussion, I guess, are that the market is publishing poor negative profit results.

"We’ve seen insurers strengthening their claims reserve to offset the losses, we’ve seen reductions in premium rate guarantee periods being offered in tenders that are coming up and contracts that exist, and less flexible product terms offered in the new tenders that are coming to market,” Goodall explained. 

“And that’s correlated with a significant reduction in appetite of the reinsurance market and certain major reinsurers closed to new business temporarily until these stabilise.” 

In fact according to Goodall, after such a long period where insurance rates have done nothing but fall away, communicating the need for rates to move to more normal and sustainable levels has not been easy. 

“We’ve been focusing on early intervention and rehabilitation and we’re starting to see some trends in more restrictive TPD definitions, the removal of cross-subsidies that have existed by age, gender and occupation in funds,” he said.

“So [that means] more individual members who will pay what they should under their rating. 

“TPD benefits may also be paid in instalments instead of a lump sum, [there may be] reduced automatic cover levels, automatic acceptance levels, increased minimum plan sizes in the corporate market and the removal of opt-up options for more cover on entry, lower IP replacement ratios and longer-term contracts with trigger points for rate reviews,” Goodall continued.

“So you’ll get the longer-term contract but you’ll get some triggers in that contract for rate reviews rather than having it not reviewed at all for a three-year period. 

“It’s all on the table and it’s occupied a huge amount of our time in terms of plan redesign, discussion and negotiations with not only existing clients but prospective clients as well.” 

Describing similar challenges, Clark said the one aspect of insurance neither fund nor insurer had lost sight of was how valuable its presence within superannuation had become. 

“If you think about the last 12 months, it’s been around getting over the top of the legislative agenda,” he said. “And look, that work hasn’t finished yet. 

“But alongside of that, there’s been a lot of work around pricing and the claims experience, understanding the drivers for it, creating a dialogue with our superannuation fund partners and in the broader industry about what this means for the long-term sustainability of the offer,” Clark continued. 

“It is so vital and valuable that insurance is retained within superannuation and so that’s a conversation that needs to keep taking place.” 

Yet according to Mu, the driver uniting all insurers is leveraging technology to improve the member experience, fund efficiency and the overall sustainability of insurance offerings as a whole. 

“So our primary focus has been on assisting our partners with MySuper compliance and meeting the new Prudential and Reporting standards and that will continue,” he said.

“But while the funds have been busy doing this, we have been building the foundations for future improvements in areas like claims management, such as using technology to enhance our eClaims platform. 

“Indeed, over 17,000 people have used our LifeAPP system to top up their cover, and we’re getting 50 per cent of our applications for additional cover as a whole from that system (straight-through acceptances),” Mu added.

“And so we want to continue our strong investment in technology that makes customers’ lives easier and ensures we remain relevant to them on a daily basis.” 

Offering a slightly different take, Goodall said that while technology suites were now all too common, it was member take-up of that technology and therefore super fund adoption that was truly starting to change. 

“We’ve got a full technology suite called eToolkit, and eToolkit has your application engine, it has all your document submission, it has online claims,” he said.

“Fund trustees can go in and administration managers can see all the stuff in real time online. 

“Now that’s not anything particularly brilliant but the funny part about it is that a lot of funds don’t have it and so we’re finding that more and more the new funds coming into us are very much enamoured with the take-up of that technology and the availability of that technology now,” Goodall explained.

“And we’ve reached that point because member expectations have changed. 

“They expect this sort of stuff to be online and available and so trustees have had to come up to speed with that quite quickly.” 

And where in the past Goodall believes super funds have been hesitant to lead in new technology investments, member expectations combined with a need to differentiate have altered the picture dramatically. 

“If you think about society now, we’ve all got iPhones or iPads or Androids or whatever it might be,” he said.

“We’re just used to apps that can tell us whether the bus is going to arrive on time, whether the train’s running, whether a dinner reservation is available. 

“It’s not that people go and check their insurance or their fund status and play with it everyday, but when they do need it they expect it to be available readily online or on an iPad or whatever it might be,” Goodall continued.

“So there is definitely an increasing interest in technology driven by member demand. 

“And what we’re showing funds is that you can drive efficiency through technology in the complete process line from application through to claims and retirement planning at the other end.”