Govt urged to drop insurance opt-in age to 21

1 November 2018

The minimum age for automatic cover for insurance inside superannuation should be lowered to 21, rather than age 25 as being proposed by the Government in its Protecting your Super legislative package, according to the Association of Superannuation Funds of Australia (ASFA).

In a submission filed with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the ASFA has warned that the Government’s approach will act to reduce existing coverage for MySuper members and notes that it has argued for the proposals to be amended in various ways to achieve a better balance between providing insurance benefits and minimising the impacts this has on retirement savings.

ASFA said that, in particular, it had recommended changing the minimum age that automatic cover could be provided to new members to 21 and allowing new members over any prescribed minimum age to be provided with automatic cover immediately upon joining a fund without having to accrue a $6,000 balance.

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As well, the ASFA submission said it had also urged the removal of the obligation on funds to cease death, terminal illness and TPD insurance for inactive accounts when the balance is over $6,000 and introduce further exemptions to allow funds to provide and continue to provide insurance on an opt-out basis to members in high-risk occupations.

“ASFA supports making definitions within insurance as standard as possible with the qualification that in doing so innovation and tailoring of insurance for the needs of particular members are not unduly affected,” the submission said.

“We are also concerned that existing benefits are not curtailed or reduced. To this end we will participate in an industry-led review of standard definitions which is due to commence early in the new year.”

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It's about time the media called out so-called 'automatic insurance' for what it is - charging clients for a product without their consent. It should be banned completely.

Isn't it a requirement of the SIS Act to provide insurance for death and permanent incapacity? Can't just ban it without legislative change, but definitely can trim it.

But aren't they going to change the legislation anyway to make insurance opt-in for under 25s? A better option would be to completely remove compulsory insurance from the SIS Act. It's an antiquated concept that has been a gift for insurers and a drain on super balances. Time for it to stop.

That's very true regarding legislative change.

On the one hand I also believe it is true that it does do a lot of good. On the other, I do agree that costs have blown out and super balances have been eroding.

Insurer's have been gifted a good amount of premiums, but I am sure that the APRA statistics show that profits aren't exactly stellar here (as opposed to the Banking industries profits). If profits are minimal they must be paying claims, no? I am not saying this excuses the insurers. The biggest culprit in recent times is mental illness claims - the premium rates just haven't been adequate to cope hence the jacking up of rates. But some of the blame must lie with trustees. They should consider member's best interests and perhaps they haven't been vocal enough in either not accepting increases, requiring a change in insurance benefits or otherwise.

The unfortunate secondary effect of the change may be cost increases for those who remain. A smaller pool of lives means risks are less spread. Those claims that are paid are paid out of the collected premiums of those who don't. Coupled with those who choose to opt-in (or stay) are those who more likely need the insurance (insurers like to call this anti-selection), which means a riskier pool of lives with higher claims paid.

What is the right balance here? I am not sure.

Some wise perspective thanks KKL. I think the other big problem with default insurance in super is the use of TPD. It is much harder to qualify for a TPD benefit these days, but because so many people have it in their super they don't believe they need income protection. Most declined TPD claims would have actually qualified for an income protection benefit.

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