The Government’s legislative push to make insurance within superannuation “opt-in” for those aged under 25 will likely result in a decline in the competitive position of group insurance, according to the Association of Financial Advisers (AFA).
In a submission filed with the Senate Economics Legislation Committee inquiry into the Government’s legislation, the AFA said that while this decline in the competitive position of group insurance would help advisers in the retail life arena this did not obscure the fact that consumers risked being seriously disadvantaged.
The AFA questioned why the Government was rushing towards implementation of the legislation and questioned whether the haste was being driven by ideology.
“These life insurance reforms appear to come from the ideological view that it is better to save a larger number of people a smaller amount of money, rather than protect a smaller number of people in the event of a life changing insurance event,” the AFA submission said.
“This is the opposite of the underlying principle of insurance. There are personal consequences of this decision that will significantly detrimentally impact many people in these groups who experience a life insurance event that they are not insured against as a result of these reforms,” it said. “This is a big decision for a Government to make.”
In questioning the reasons for the speed with which the legislation had been introduced, the AFA suggested the Government would have been better served waiting for the findings of the Productivity Commission’s (PC’s) review of default superannuation.
Further, it said it would have made sense for the PC itself to have considered the consequences of the legislative package as part of its current inquiry.
“We should make the point early on in this submission that the impact of these reforms is likely to result in a decline in the competitive position of Group insurance, which will positively impact upon the relative competitiveness of retail advised life insurance,” the AFA said.
“We are not expressing our views in this submission in an effort to protect the interest of our members, who predominantly advise on retail advised life insurance, which will not be directly impacted. It is actually quite the opposite, in that these reforms will increase the cost of Group insurance and make it easier for our members to find insurance options that are better than the Group super arrangements.”