With competition between super funds really hotting up under the choice regime, is it time for super funds to start developing innovative life insurance products as a key differentiator in attracting and retaining members?
I recently heard the chief executive officer of one of the largest and oldest established industry superannuation funds talking to a group of employers about the wonderful benefits of compulsory superannuation.
Firstly, there was retirement savings, which provide benefits to members upon retirement and which, in many cases, was the first time some employees had ever received or accumulated any sort of lump sum savings.
As the superannuation industry matured, group life insurance was then introduced to protect members and their families from the financial devastation of losing a primary income earner prematurely. This was followed by total and permanent disablement (TPD) insurance and, more recently, group salary continuance (GSC) or income protection insurance.
Combined with their employer contributions, workers and their families now have a more financially secure future. The superannuation industry still faces a significant challenge ensuring workers are taking up insurance cover at levels appropriate to their financial circumstances and lifestyle needs. However, at least through their superannuation fund, workers and their families have access to cover and, in many cases, access to some level of financial advice.
What struck me whilst listening to this presentation regarding the benefits of superannuation was just how little innovation there has been with insurance products within the superannuation regime. This can be partially explained by the need for super funds to meet the sole purpose test. However, under the competitive environment of choice, surely it is time to look at further opportunities to meet some of the other protection and savings needs of members throughout their working lives.
Let’s take the example of Bruno, a 33-year-old father of three. Bruno is an electrician working for a large building company, and earns $52,000 per annum. He is a member of a superannuation fund where his employer contributes the 9 per cent minimum superannuation contribution guarantee (SCG) amount, as well as paying for Bruno to have two units of death and TPD cover. This equates to $60,000 in cover should Bruno die or be permanently disabled whilst an insured member. Bruno also pays for a further five units of death and TPD cover, giving him a total sum insured of $210,000. Bruno has elected to pay the premiums for GSC insurance, which covers him for 75 per cent of salary for two years after a 30-day waiting period should he be disabled through either sickness or injury and unable to work, and where he meets the insurer’s other definitions.
Bruno and his wife Emma feel that their projected superannuation balance on retirement will be sufficient to provide a comfortable lifestyle in retirement, and that they have sufficient insurance coverage in case anything should happen to Bruno prior to retirement. However, they wish there was some way that they could cash in their insurance policy for a residual amount in the future, but prior to retirement.
I believe this is becoming an increasingly common scenario for families. They are progressively taking improved care of their future through retirement savings and insurance, but many still lack any real savings in the middle of their working life, perhaps at a time when it is the most important to have some extra money, whether, for example, for school fees or that much needed extended vacation.
This lack of mid-life savings is not a new problem for Australian families and the solutions may not need to be new either. With superannuation funds playing an ever increasing role in providing financial solutions for working Australians, maybe it’s time for them to be developing products that sit outside of the fund, but offer integrated solutions to the needs of its members.
One such solution I often hear people in the life insurance industry discussing is the whole of life/universal lifestyle products. You know the type of products that were popular in the 80s, where part of the premium is used to purchase a life insurance policy, and the other parts used to purchase a savings instrument such as a bond or invested in a balanced fund to gain exposure to the equities markets. A common marketing slogan of the time was, “money if you die — money if you don’t”.
Families such as Bruno and Emma’s, as well as hundreds and thousands of middle Australian families, have a need to accumulate some mid-life savings. Are our superannuation funds up to the challenge of providing the solutions, as they have done with retirement and protection products?
As Australians become better educated regarding their superannuation choices, perhaps it will be those funds which provide their members with innovative insurance solutions that will be successful in acquiring and retaining the most members. Or, in the example of whole of life, perhaps it’s a case of what’s old is new again.
