Is the group life regime enriching the institutions?

The current arrangements around the provision of group life insurance represents a serious breach of the relevant legal standards which serves to enrich institutions to the detriment of superannuation fund members, according to insurer, ClearView.

In a submission to the Productivity Commission (PC) ClearView has suggested that the absence of advice in the group life equation contributes to this detriment.

ClearView has been a strong critic of the “opt out” arrangements applying to insurance within superannuation and used its submission to state that the superannuation fund trustee’s duty to act in the best interests of a member was “not satisfied by compelling each member to have life insurance cover which is designed to suit a large number of beneficiary members in a segment”.

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“In contrast, outside group life insurance, the life insured and the policyowner have access to advice, under regulated processes and standards, to ensure that the person is offered only a suitable product,” it said.

The ClearView submission said a superannuation fund beneficiary member did not have practical access to that advice but instead naturally depended on the trustee to act in the beneficiary member’s best interests but then noted that, “the trustee is precluded from doing so by the opt out, fixed cover model”.

“The effect on the life insurer and the trustee is that both financial institutions save expenses by a ‘one size fits all members or each segment’ approach but the beneficiary member is disadvantaged,” it said.

The ClearView submission claimed that the outcome was not only a serious breach of the relevant legal standards “but also enriched the institutions to the detriment of the beneficiary member”.

“The life insurance industry is using the superannuation system to sell insurance on a gross basis, with minimised expenses and without proper regard to the best interests of the individual’s aim to protect wealth,” it said.

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I couldn't agree more. Under the current 'Opt-Out' regime, some members are screwed by paying for products they haven't agreed to, are inappropriate and in some cases worthless because they couldn't make a claim due to tricky clauses such as minimum balances and pre-existing conditions. This behaviour needs to stop.

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