The Financial Services Council (FSC) has once again called for further details that the government will assess the consumer outcomes of group insurance against the enshrined objective of superannuation.
In its submission to the Senate economics legislation committee, the FSC highlighted it had long supported enshrining the objective of super into law with the belief that it will “deliver greater stability and congruence to superannuation policy settings and in turn enhance the public confidence needed in a retirement savings system.”
However, the submission acknowledged that previous recommendations to provide clarification in the exploratory material on the consumer outcomes of group insurance had yet to be addressed.
FSC chief executive Blake Briggs pointed out that the association had previously called for the clarification of the explanatory material surrounding the benefits of group insurance in the super system in its October submission to portray the government’s concerns that service standards in group insurance need to be improved and may require regulatory reform.
In the Superannuation (Objective) Bill 2023 before the Senate, the proposed ‘context on the broader benefits of the superannuation system’ chapter of the explanatory material, particularly item 1.20, does not provide the additional clarification, he said.
“The FSC acknowledges that a ‘set and forget’ approach to current arrangements for group insurance arrangements in superannuation may not be sustainable,” he said.
For example, the corporate regulator’s Default insurance in superannuation: Member value for money report in 2020 found some 86 per cent of super members with insurance were on default settings, with many not even aware they had insurance through super or that they were paying for it.
Across the 20 MySuper products examined by the corporate regulator, it found two identical members “can get very different default insurance” depending on which superannuation product they each have, Briggs said.
At the extremes, some MySuper products in the sample offered over 20 times as much default death and TPD cover than others to the same type of member.
In 2023, a subsequent ASIC review continued to find room for improvement for super trustees on their life insurance offering for members.
While ASIC identified some trustees had shown progress in their insurance offering, this was “not necessarily consistent” across the industry and trustees had not made “sufficient effort in all areas”.
Additionally, the FSC’s submission highlighted formal recommendations from the Productivity Commission and the Hayne royal commission of a review into group insurance over coming years that has not yet been implemented.
“The FSC supports measures that ensure consumers are confident that system wide settings for group insurance arrangements continue to deliver consistently good outcomes and align with the broader objective of superannuation,” Briggs said.
“We note that if the government chooses to proceed with a future review of group insurance settings in superannuation the implementation of this draft legislation will ensure that review would benefit from the guidance of an objective of superannuation.”