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Opt-in not a viable option for group
The main issue with group insurance is that it is not needed until it is needed, and in the majority of cases it is not needed, according to MLC.
The National Australia Bank-owned wealth manager has used a submission to the Productivity Commission's (PC's) inquiry into Superannuation Efficiency and Competitiveness to argue that group insurance has a positive impact but also has its drawbacks.
"Group insurance through super provides a positive benefit through the effect of wholesale or group buying power which is afforded by an opt-out arrangement," it said.
"The main issue with group insurance is that it is not needed until it is needed. And, indeed, in the majority of cases it is not needed," the submission said.
However it said this was why it could be provided as a premium-based product which, relative to fully funding the benefits that are paid, was relatively inexpensive.
"Because of the pooling of all participating members, the risks are spread and this allows the benefits to be paid that can be significant in value relative to premiums," the submission said.
"In this context the health of the pool is critical."
The submission warned that switching to an "opt in" approach to group insurance would introduce significant risk, dramatically increasing the need for insurers to require member health information before agreeing to provide cover — something which was likely to result in higher premium costs and a lower take up of insurance cover.
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