Superannuation funds exposed to anti-selection
Superannuation funds need to carefully monitor increasing automatic acceptance limits (AALs) to keep anti-selection under control, according to RGA Reinsurance managing director Pauline Blight-Johnston.
Speaking at an ASFA luncheon on group life insurance, Blight-Johnston said that people often misunderstood the role that underwriters played.
"The purpose of underwriting is like a metal detector at an airport. Because the metal detector's there, you don't try to take metals things through. [Underwriting is] not there necessarily to find out more about peoples' health than they already know," she said.
The problem with high AALs was that it opened up the possibility of high levels of anti-selection (ie, when a person finds out they are terminally ill and then attempts to get life insurance) - particularly at a time when funds were watering down their other controls against anti-selection, she said.
"There are some funds out there at the moment that are exposed to anti-selection," Blight-Johnston said. "At the moment that doesn't seem to have been picked up by the population, so I think we're getting away with it - but at some point in time we need to be alert to it."
AustralianSuper general manager Paul Schroder disagreed that there was a problem with high AALs.
"I think all the good funds have got their own strong plan and they've worked with their insurer - and their insurer's working with their reinsurer - to come up with something sensible, and it gets reviewed," he said.
Blight-Johnston agreed with Schroder that higher AALs were effective in tackling underinsurance, but she stressed that they needed to be closely monitored.
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