The Association of Superannuation Funds of Australia (ASFA) has again strongly questioned why the Productivity Commission (PC) has not appropriately included an assessment of insurance in its review of alternative default models.
In a submission responding to the PC’s draft report on alternative default models, ASFA said it rejected the PC’s draft finding that the assessment of ‘default’ products in all models should specifically exclude bundled insurance products and that bundled insurance is best dealt with as a “regulatory add‐on”.
ASFA said that, contrary to the views of in the draft PC report, superannuation funds had sought to use insurance as a means of differentiating themselves in the MySuper environment.
“…many funds have turned to improving their insurance offerings and adjusting a range of benefits and features (most commonly) to suit a like group of members. An example of innovation in insurance design is staggered total and permanent and Disability (TPD) benefits that promote rehabilitation and a return to work,” the submission said.
It said that in many cases, funds had been able to lessen their premiums at the direction of trustees – “who are constantly challenged to limit premia while providing valuable insurance benefits”.
“In the last quarter of 2016 alone, approximately 20 per cent of superannuation funds changed insurance rates or cover,” it said. “On average, cover per dollar of weekly premiums increased for members across all insurance types – death, TPD, and income protection.”
The submission said this highlighted that the insurance in superannuation market was continuing to adapt and sharpen its focus on pricing for risk in market segments.
“These characteristics demonstrate that a significant element of the competitive rivalry that exists between superannuation funds occurs because of differences in insurance benefits and features,” ASFA said. “Considering the mandate the commission has to develop models for a new formal competitive process, it is difficult to comprehend the exclusion of such a fundamentally competitive element.”
