Insurers estimate that superannuation members with default insurance, as a whole, would be paid up to 79 cents in claims for each dollar of insurance premiums they were charged over a six-year period to FY 2018-19, according to the Australian Securities and Investments Commission (ASIC).
ASIC released a report today measuring value for money in default super insurance that considered data on default insurance that were offered by 20 (82%) large MySuper products.
ASIC commissioner, Danielle Press, said: “Most default insurance cover is complex. Trustees play a pivotal role in designing default cover and negotiating with insurers on behalf of their members.
“I encourage trustees to examine the outcomes they are delivering to members through default insurance and to proactively consider how to deliver value for money in a way that is financially sustainable.”
The report also found that different cohorts of members could receive different outcomes.
“ASIC’s analysis of detailed insurance claims data provided by trustees identified that some cohorts of members with default insurance, such as younger members and those in insurance policies with more restrictive terms and conditions, may be receiving relatively low value,” ASIC said.
“Such outcomes raise questions about the appropriateness of the default insurance design and fairness between groups of members.”
The report also found that there was a wide variation in default cover offered, as some large MySuper products offered over 20 times as much default cover as others.
“The premiums members paid for default cover also varied widely. Differences in price are partly due to different levels of cover, but also other factors including the average risk level of the membership and the generosity of terms and conditions,” it said.
ASIC also found that trustees found it challenging to provide member insurance data.
“Some trustees were unable to properly identify which members had default insurance, and some struggled to explain patterns in the data they provided to ASIC. Those with the most complicated insurance designs and product structures tended to face the most issues,” it said.
Press noted that the report would help trustees take “meaningful steps” to enhance member outcomes and meet their existing and new regulatory obligations.
“These include the member outcomes assessments overseen by APRA [Australian Prudential and Regulation Authority] and the design and distribution obligations [DDO] overseen by ASIC, which commence in October 2021,” she said.