Group advantage being lost to planners
New analysis contained in an Australian Prudential Regulation Authority (APRA) discussion paper suggests that group insurance provided by superannuation funds may become an increasingly unattractive option for financial planning clients as the insurers tighten the rules to restore margins.
The APRA discussion paper, released with a letter to life insurers providing group insurance, points to a range of changes being implemented by insurers which appear likely to make super fund group insurance less attractive to advised clients, including significantly changing automatic acceptance limits (AALs) and no longer making 'opt-in' offers that allow members to take or increase cover with little or no evidence of health status.
The APRA discussion paper is based on responses from the insurers and traverses the changes they have put in place, and comes barely a month after discussion at a roundtable conducted by Money Management's sister publication, Super Review, suggested that some financial advisers were targeting particular super funds and their group insurance schemes because of their generous AALs.
The APRA discussion paper cited the common changes being implemented by group insurers as being:
- No longer making 'opt-in' offers that allow members to take or increase cover with little or no evidence of health status;
- Increasing the length of the 'at work' period for members to become eligible for cover (e.g. from one day to one month);
- Tightening the definition of Total and Permanent Disablement (TPD) (for example, from 'unlikely to work' to 'unable to work');
- Introducing severity-based TPD benefits;
- Introducing TPD benefits payable via instalments rather than as a lump sum;
- Reducing default TPD benefits and increasing default GSC benefits;
- Reducing automatic acceptance limits;
- Making greater use of health questions for optional cover; and
- Making greater use of exclusions for pre-existing conditions, hazardous occupations, suicides and pandemics.
The APRA discussion paper noted that, in addition, most insurers were currently trying to negotiate similar changes to terms and conditions with existing schemes when their premium guarantee period ends.
It said that if the scheme trustees were not willing to change the terms and conditions the scheme typically was repriced accordingly.
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