PC challenged on group insurance
The Productivity Commission (PC) has been taken to task by a major superannuation industry body for appearing to go beyond its brief by proposing a separate and new competitive process for group insurance.
In a strongly-worded section of its submission to the PC on alternative default models, the Association of Superannuation Funds of Australia (ASFA) has stated: "We are concerned that the Productivity Commission is considering allocating default insurance arrangements in superannuation through a separate competitive process. This seemingly goes beyond the terms of reference of the inquiry".
In doing so, ASFA has warned of significant adverse consequences including usurping the role of superannuation fund trustees, reducing competition in the insurance market and reducing member benefits.
"An additional selection process introduced in relation to insurance would add a significant layer of complexity into the system for no tangible benefit. It would be likely to lead to additional complexity and administration costs," the submission said.
"A competitive group insurance market is a key reason that insurance premiums for group insurance in superannuation are much lower than those paid for individually underwritten retail insurance policies," it said.
"When negotiating fund level group insurance contracts trustees can leverage wholesale bargaining power that arises when striking an arrangement for many members, rather than for an individual member. This, however, can only occur in the context of a competitive group insurance market with multiple participants."
The ASFA submission said the organisation acknowledged that the system was capable of improvement and noted that it was currently involved "in collaborative efforts across both the superannuation and insurance industries to lift standards and improve outcomes for members".
"The matters that are subject to consideration include benefit design, insurance definitions, and claims processing," it said.
However its selection of insurers had not been identified as a problem area and in fact the current system worked well in this regard — "trustees review their arrangements regularly and members benefit from a competitive group insurance market that facilitates the selection of insurers who meet members' needs at reasonable cost".
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