Insurer ClearView has told the Productivity Commission (PC) that the superannuation industry should be made to move to an ‘opt-in’ system for group life cover to ensure members know what life insurance cover they actually have.
In a submission filed with the PC’s current inquiry into Superannuation Competitiveness and Efficiency, the insurer claimed a move to ‘opt-in’ for insurance within superannuation would “significantly reduce the number of workers who think they, and their loved ones, are adequately protected when they’re not”.
“Importantly it will lead to more workers seeking advice, either via their super fund or a third party, about the type, and level, of cover they need,” the submission said.
ClearView has also played down the Government’s moves to make ‘opting out’ of insurance within superannuation easier, claiming it would fall well short of the mark.
“… making opting out easy still won’t help those who don’t understand that they are paying for useless cover and who don’t even consider that they should opt-out of it,” the submission said.
“In addition, inertia and member disengagement will likely mean it has limited success – indeed the lack of success in getting members to save fees by aggregating duplicate accounts should be instructive in this respect.”
ClearView claimed an ‘opt-in’ model would also force many of the “current inherent cross-subsidies to be addressed and help make transparent what the real costs of the current system”.
“It is ClearView’s belief that under the current system, many workers have cover they don’t know about while others think they’re adequately covered when they’re not,” it said.
“Some members are actually paying premiums for cover they can’t even use. They aren’t paying for advice and so don’t get any, and they or their families have to bear the consequences.”
“If the goal of group life insurance is to protect and maximise value for members, this is a highly inefficient system. It hinders optimal behaviour by discouraging members from properly assessing their insurance needs and regularly reviewing their arrangements. Instead it facilitates a ‘set-and-forget’ approach to insurance, giving members a false sense of security.”
