Trustees, insurers, and administrators should not delay reviewing the Insurance in Superannuation Code of Practice draft as it could cause issues surrounding premiums and administering code requirements, according to Rice Warner.
The research house’s latest analysis said there was opportunity now to influence the code while it was still in the consultation phase. It said there was considerable variability and complexity in the design and administration of insurance arrangements from fund to fund and whilst the code permitted flexibility, there might be difficulties in compliance for some funds.
Rice Warner said the code had addressed the risk of retirement balance erosion while affording trustees the ability to tailor benefits to suit the specific needs of their fund’s membership.
“There will however be a need for trustees to review their insurance strategy and redesign benefits to ensure the premium limits for automatic insurance members will not be breached,” the analysis said.
“In considering whether the fund’s benefit complies with these limits, trustees will need to decide how best to segment their membership and measure the appropriate salary level and period of membership for the different cohorts of members.”
Rice Warner noted that the new rules would result in a significant drop in cover levels for some members as there would be a conservative default level chosen to avoid members breaching the premium limits.
“As a result, trustees will also need to review the approach to voluntary cover, in particular to ensure that members don’t inadvertently lose cover they thought they had,” it said.
On the fact that trustees would have up to two years from adopting the code to review the fund’s benefit design, depending on when the policy was due for a renewal, Rice Warner said trustees needed to carefully consider the timing of adopting the code as a review of insurance strategy and implementation of all the changes was likely to take months to complete.
On the code’s requirement for more frequent and detailed member communications on insurance matters, funds would need to be able to regularly identify which members needed to be contacted at such times as non-receipt of contributions, changing fund divisions and when cover was about to cease.
“Cover must be reinstated at certain times and premium refunds given in some circumstances. These requirements will force funds to collect and store more information about their members and have multiple methods of communicating with members,” Rice Warner said.
“Funds will need to ensure that opting out of cover can be done on-line as well as by phone, email or post.”
Rice Warner noted that several funds had implemented premium adjustment mechanisms with their insurers.
“This has enabled trustees to provide their members with cover on more affordable premium rates and with better terms and conditions than might otherwise have been available,” it said.
“The code does not cater for all arrangements currently in place and the requirements, in particular for all adjustments to be paid into a fund’s reserve, may cause considerable expense which will ultimately need to be met by members.”
