Let funds adjust premiums and cross-subsidies

The problem of superannuation account erosion via insurance group insurance premiums is real but can be overcome by the funds themselves.

That is the bottom line of analysis conducted by actuarial research house, Rice Warner which has again warned the Government of serious detrimental consequences for members, funds, insurers and administrators flowing from the most recent legislation impacting insurance inside superannuation – the Putting Members’ Interests First Bill.

Rice Warner said that while it supported the objectives of the legislation, other factors needed to be taken into account not least the confusion of introducing too much legislation too quickly.

The research house said that the debate over insurance inside superannuation had served to polarise the industry but that it was undeniable that cross-subsidies exist with younger superannuation fund members supporting older fund members.

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“Levels of default insurance cover for young members are typically low, hence the dollar premium amounts are still small. At the same time their account balances are also small, and account erosion is an obvious possible outcome and therefore legitimate concern,” Rice Warner said.

However, it said that this should not lead to an immediate conclusion that insurance must be removed from under 25s.

“The problem can be simply fixed by Funds continuing to reshape premium rates to reduce these significant cross-subsidies,” the Rice Warner analysis said.

“The Senate Economics Legislation Committee is due to complete its inquiry and report on PMIF by 23 July 2019. The industry must now progress insurance reviews with a view on the outcomes both with and without the proposed PMIF changes eventuating, although it does seem likely some form of further change under the Bill will indeed happen.”