MySuper is set to change the underlying dynamics of the superannuation industry, and as TAL’s Gavin Lai and Renee Voutt point out, insurance providers will not be immune.
The relationship between superannuation trustees and group insurers has developed over many years of working together through varied changes to the superannuation landscape.
This bond is set to be strengthened further over the next two-to-five years as both parties face the combined might of the MySuper legislative changes, increased regulation, and an ever-increasing pressure to survive competition.
The secret to success will lie in how quickly trustees and insurers can adapt to the new regulations, recognise and tackle any immediate need for change, and whether they can seize the opportunity to innovate and differentiate insurance offerings.
A new world
Until now, the main driver of insurance within superannuation has been trustees, in response to a growing awareness of the need for members to have adequate financial protection.
This has, in turn, created competitive incentives for funds to provide innovative and differentiated insurance offerings.
However, with the introduction of Stronger Super reforms and their accompanying prudential changes, the pressure for adequate insurance provision is now being driven by the Government.
These legislative changes also mean group super insurance arrangements will be subject to more legislative boundaries, formal processes and regulatory scrutiny.
In this new world, APRA is not only expecting trustees to provide insurance, it is also driving trustees to take responsibility for ensuring their members’ insurance is sufficient, relevant, and properly administered.
Immediate challenges
While insurance is considered a relatively small component of the legislative “landslide”, its impact should not be underestimated.
The effects of changes to insurance have potential flow-on impacts to system requirements, process changes, fee structures, transition challenges and product terms.
The draft APRA Prudential Standard SPS250 is also raising the level of involvement that trustees will have in developing and maintaining the insurance offering for their membership.
For some, this will require a change of mindset, and the insourcing and formalisation of areas that have traditionally been outsourced – explicitly or otherwise – to insurance providers or third parties.
This has prompted discussions between trustees and their insurers about a wide range of issues, such as developing appropriate insurance strategies, agreeing binding service levels, and determining how claims and underwriting data should be properly maintained.
In the immediate term, trustees should look to their insurer to support them in assessing the insurance changes required for their MySuper offering.
Leveraging the expertise and resources of a fund’s insurer to help plan, develop, enhance and implement insurance components, can help trustees deal with the spiraling cost of complying with the new reforms.
Trustees should also consider how their fund will deal with the insurance challenges posed by automatic consolidation (due to occur in 2014). This change may see significant numbers of members either joining or leaving.
How will the insurance policy respond to potential large-scale changes in membership?
Will premium rates be affected – and what notice period will apply in respect of any change?
Will new entrants be able to receive adequate cover?
These are just some of the multitude of questions that should be raised with insurance providers.
Long-term opportunities
Although the entire market is dealing with the same challenges, there is the potential for competitive advantage for funds that can comply with the requirements while also creating a differentiated and sustainable insurance offering.
Because insurance is one of the few remaining areas that can be tailored within a MySuper offering, the scene is being set for fierce competition between funds to attract and retain members.
And given the Government’s move to facilitate more voluntary fund switching, the proposed automatic consolidation of accounts, and the potential widening of the default fund space recommended by the Productivity Commission, there is strategic value in taking the time now to develop a unique insurance offering.
Trustees should also be considering how insurance can aid retention (eg, encouraging contributions from inactive members), growth (eg, supporting rollovers into the fund by offering the ability to transfer their insurance as well as their investments) and engagement (eg, offering insurance enhancements and increasing opportunities in targeted marketing initiatives).
For better or worse
While complying with MySuper changes will require considerable adjustment and an increased commitment to insurance-related activities, the potential benefits are significant for funds, insurers and members.
Ideally, insurance offerings will become more relevant for members, collaboration between trustees and insurers will increase, and the industry will become more sustainable and transparent in its insurance dealings.
Gavin Lai is head of product and Renee Voutt is product solutions manager, group life at TAL Life Limited.
