While insurance premiums could potentially erode members’ superannuation accounts, they are well targeted and still represent good value for money, according to Berrill & Watson Superannuation and Insurance Lawyers.
In a submission to the Retirement Income Review, the law firm’s principal and director, John Berrill said total and permanent disablement (TPD), life, and income protection insurance provided through super had amongst the highest loss ratios of comparable insurance products, and were therefore still good value for money.
“Insurance in superannuation is indeed an important part of the retirement incomes landscape in Australia and operates as an important safety net for people who experience disability,” he said.
“It is essentially a self-funded means by which people whose working lives are cut short due to disability (or death) can still have adequate retirement incomes and not be dependent on the public purse for income support.
“Insurance in superannuation has undoubtedly experienced problems in recent years which have the potential to unnecessarily erode retirement incomes.”
Berrill said the issue that had been rightfully raise was the extent to which insurance with those premiums represented value for money in the retirement incomes framework.
“Some of the problems identified in recent years with group insurance in superannuation which have affected this assessment include:
- Harsh or unfair definitions and contract terms;
- Multiple superannuation accounts with duplicate income protection benefits;
- Poor claims handling practices; and
- Prolonged claim timeframes.”
Berrill pointed to the Protecting your Super (PYS) and Putting Members Interests First (PMIF) legislation which were both passed in 2019 to help address the issues, along with the current consultation by Treasury into potential universal terms of conditions for insurance in super.
He said the adoption of standardised terms and conditions in MySuper-compliant default insurance in super would “drive home” the importance of value for money of insurance in super as part of the retirement incomes systems.
“Properly done, it could be a game changer,” he said.
“…These problems have received much attention and substantial changes have been implemented, whilst others are still in train e.g. the Treasury consultation.
“We will see the effect and benefit of these changes in the next few years.”
Berrill noted that it would be appropriate to review insurance in super in 2023 – four years from the date of the Productivity Commission report on accessing efficiency and competitiveness in super.
“This would allow the reforms time to bed down and accommodate the usual three-year cycle for group insurance contracts,” he said.
“It is important that we get this right to deliver equitable outcomes for people who experience disability and to make sure that they are not left behind in the retirement incomes system.”
