(February-2004) Wooing the members with insurance

With many trustees believing choice of fund legislation will make member retention even more difficult, funds are looking to broaden their insurance offering beyond the traditional life insurance option to include products such as income protection and even trauma.

Hostplus moved to outsource last year when it put its Group Life out to tender and already this year, the CEO of the Local Government Superannuation Scheme, Brett Westbrook, has confirmed that the fund has called tenders for its requirements.

“We’ve traditionally been self-insured, but we’ve just put our accumulation fund out to tender and we’ll now see what the market generates,” he says.

Westbrook says that with a generally good claims experience, the fund hasn’t felt a pressing need to go to tender, but believes it is important to see what the market has to offer.

“It will be up to the board to decide on that basis whether what is being offered is more favourable than the current arrangements,” he says.

“The reality is that insurance is a difficult area for many funds to manage and there is a real need to provide flexibility in terms of member requirements,” Westbrook says.

He says that in a choice of fund environment, the provision of insurance will become increasingly important, but that the challenge for funds will be to provide the arrangements in a cost-effective manner.

Hostplus CEO David Elia says the fund’s decision to put its Group Life out to tender was not taken lightly and was based on a number of factors including the fund’s past claims experience.

“We put our Group Life out to tender last year and we ended up selecting ING primarily based on the flexibility they were prepared to offer,” Elia says.

Explaining the rationale behind the move by Hostplus, Elia says that it’s been a fact of life that the retail funds have been able to deliver more flexibility than industry funds, and this is something Hostplus recognised it needed to deal with.

“The point with the ING contract is that we’ve been able to significantly increase coverage at no additional cost,” he says. “Our decision was driven by our own claims experience and we considered the move very hard before committing.”

Elia says the provision of an attractive insurance offering is particularly important to those funds competing as public offer funds, particularly with respect to successor fund arrangements.

“You have to be able to promise the same or better. You simply have to be able to provide that level of flexibility and service,” he says.

Elia says there was no shortage of interest on the part of insurers looking to compete to provide the service to Hostplus, but adds that it is crucial that funds have the administrative capacity and flexibility to handle the situation.

He says that even after outsourcing, insurance remains a challenging environment in circumstances where premiums for some sorts of insurance — such as income protection — are increasing.

Rainmaker’s Alex Dunnin says that in circumstances where insurance remains a major issue for superannuation funds, there is a clear need for the options to be clearly spelled out to members.

He says this is particularly the case in circumstances where the insurance industry has a track record of making things overly complex.

This is a point endorsed by UniSuper CEOAnne Byrne who says members thinking about transferring funds will need to make sure they’re not comparing apples with pears.

Byrne says UniSuper is able to offer some very competitive insurance deals to members because, frankly, they are not working in high risk areas.

“An industry fund operating in, say, the building and construction industry probably couldn’t match the deals we can offer our members employed in tertiary institutions, but if we suddenly had an influx of members working in high-risk callings, then costs would go up,” she says.

Looking at the emerging dynamic, including choice of fund, Dunnin says that in circumstances where a lot of people aren’t necessarily happy with the performance of their existing fund, a more attractive insurance offer can lure them to make a change.

“However, the details of those insurance offers need to be made clear in circumstances where the costs involved in a fund making an insurance offer can be up to five times what the person might pay elsewhere,” he says.

Dunnin says the insurance offering by superannuation funds has certainly been expanded beyond the traditional life coverage. You now have funds, including industry funds, offering home insurance, trauma insurance and even income protection insurance.

“However, a lot of funds are hamstrung in terms of what they can offer and, indeed, whether they should actually be in the insurance space or whether they will be effectively trying to compete with one hand tied behind their back,” he says.“For those funds, it probably makes sense to do what HostPlus did and contract the business out.”

Dunnin says that for members, it is a question of whether taking up the insurance offerings of superannuation funds actually puts money in their pockets.

“But really, the provision of insurance is a big issue for superannuation funds, particularly the classic accumulation funds,” he says.