Insurance within super a valuable benefit

One of the most welcome developments in the Australian superannuation industry in the past 12 months has been the unity of voice around the importance and value of group insurance within superannuation.

When the Financial Services Council (FSC) earlier this month acted as a conduit for a joint statement by all the major superannuation lobby groups supporting group insurance, it had the effect of sending a clear message to the Government that it should tread carefully in dealing with the issue in the context of current deliberations.

The Statement of Intent issued by the FSC was important because it was signed off by the Association of Superannuation Funds of Australia (ASFA), the Australian Institute of Superannuation Trustees (AIST), the Industry Funds Forum (IFF), and Industry Super Australia (ISA) – in other words by every significant super lobby group.

Such a clear Statement of Intent from such a broad cross-section of the superannuation industry must leave the Government in no doubt that a single hymn sheet exists on the question of group insurance and that one side cannot be played off against another.

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This is not to say that each of the organisations do not bring slightly different agendas to the table on group insurance, but it is to say that they are thoroughly agreed on its importance as one of the key foundation stones of the Australian superannuation system.

The FSC’s motivations for helping lead the way on developing the Statement of Intent are clear – the organisation wants to get appropriate traction for its Life Insurance Code of Practice across both the retail and institutional ends of the insurance market.

Given continuing opposition to the Life Insurance Framework emanating from some sections of the financial planning community, unanimity of purpose in the group arena is pivotal to the FSC and its constituency among the major insurance companies can be seen as vital.

But equally, Industry Super Australia and the Australian Institute of Superannuation Trustees have much to gain from reinforcing with the Government and the Productivity Commission (PC) the importance of group insurance in the context of defining the broad purpose of superannuation.

Any reading of the submissions filed with the Productivity Commission as part of its current review of the Efficiency and Competitiveness of the superannuation sector reveals the possibility of some serious meddling with group insurance. This is particularly exemplified by criticisms of the equity of pooling arrangements and suggestions that those aged under 30 should be allowed to opt out.

The group insurance arrangements applying to superannuation are far from perfect, but the past 20 years have demonstrated that insurance within superannuation has been a valuable economic asset to Australia, helping close the under-insurance gap and acting as a safety net for super fund members hit by death or industry.

Indeed, as much as submissions to the Productivity Commission have questioned some of the efficiency and equity of the group model, much more would likely be achieved by superannuation funds and insurers putting more work into the policy designs and definitions.

It should go without saying that the provision of insurance within superannuation can be improved but the Government and the PC should pay heed to the unanimity of the industry as expressed in this month’s Statement of Intent.