What’s the fallout from some super-cutting insurance premiums?

In its letter to trustees and life insurers last March, the Australian Prudential Regulation Authority (APRA) expressed concern about multi-employer group life insurance in superannuation. This year, the APRA plans to re-engage with those parties in the second and third quarters. According to the letter, APRA had gathered “concerning developments” in relation to premium volatility, availability, and tender practices.

The APRA said these trends are reminiscent of those experienced between 2012 and 2016 when insurance losses were significant after substantial increases in benefits and premium reductions. This resulted in insurers raising their premiums and reducing coverage options. In some cases, trustees could not even obtain quotes.

According to a spokesperson for the regulator, APRA has monitored super insurance trends since its March 2021 letter. As trustees and insurers have reevaluated insurance offerings, we noticed changes in premiums. We are seeing varying results from recent tenders for various insurance products, including death, total and permanent disability (TPD), and income protection (IP).

Numerous funds have made recent changes to premium rates, but they do so for various reasons. For example, as of May end, AustralianSuper members can expect a drop of 11% in their insurance premiums.

We’ve been able to lower the cost of death, total permanent disability, and income protection in the past year due to fewer claims being filed,” said Richard Land, head of AustralianSuper’s insurance department. The fund said from May 28 onwards, the work rating and cover type will impact the cost of death, TPD, and income protection.

“The company says its mission is to provide its members with affordable, sustainable insurance. Our goal is to improve the insurance products we offer and their costs continually, so we can minimise the impact of increases in insurance costs or even decrease costs, depending on past claims paid,” says the fund.

In contrast, members with income protection policies covering a benefit payment period up to five years or a benefit payment period up to 65 will find that the cost of their insurance increases as claims rise.

The reason behind this is in AustralianSuper; members have three different options for benefit payment periods:

  • a default two-year period;
  • five years; or
  • until age 65.

Your benefit payment period begins when you cease working temporarily due to illness or injury.

The income protection claims for benefit payment periods up to two years decreased over the past year so that Aussuper is able to reduce the cost of this type of coverage.

However, a significant increase has occurred in the number of Income Protection claims with benefit payment periods of up to five years and Income Protection claims up to age 65. Consequently, the cost of these two types of coverage had to rise to reflect the costs of providing them to members more accurately.

All ages and work categories (blue-collar, white-collar, and professional) will see a drop in 4-5% death benefits, while Total Permanent Disability will decrease by 15%.

Income protection can have different costs depending on work rating, age, benefit payment period, and waiting period.

The fund says that Australia Super is run exclusively for the benefit of its members, so members pay only for the benefits they receive.

As the fiscal year draws to a close, super funds are scrambling to provide members with more detailed retirement income plans ahead of the deadline. As of July 1 2022, Australian superannuation funds will be required to provide members with individual, granular plans to help them achieve their retirement goals.

Retirement Income Covenants (RIC) require fund trustees to formulate, regularly review, and implement strategies for achieving and balancing three retirement objectives:

  • maximising expected retirement income
  • to manage longevity risks, investment risks, and inflation risks to ensure their retirement income is sustainable and stable
  • giving them the flexibility to access their funds during retirement

To put it simply, the RIC requires super funds to ensure you have sufficient funds to cover your expenses throughout your retirement years.

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