Industry funds most impacted by higher group premiums

Members of industry superannuation funds have found themselves more exposed to increases in premiums for death and total and permanent disability (TPD) insurance than their counterparts in retail master trusts and corporate funds, according to new data released by SuperRatings.

The data validates the broad experience of the group life sector over the past two years which saw insurers lifting premiums in the face of generally higher claims experiences.

The SuperRatings analysis said that while its findings showed that, overall, the average superannuation fund Death and TPD insurance premium was only slightly higher in 2014 than it was in 2011, it had also revealed a "substantial divergence" between sectors

It said Not for Profit funds had suffered overall increases compared to their Retail Master Trust or

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Corporate Fund peers, whereby premiums declined over the three year period.

It said the disparity between sectors was vast with Not for Profit superannuation funds bearing the brunt of the re-ratings, averaging a 22.4 per cent increase, while Retail Master Trusts experienced an average decrease in premiums of 2.3 per cent, while Corporate Funds fared far better than their peers, passing on an average 4.4 per cent decrease over the three year period.

Super Ratings chief executive, Adam Gee said his organisation believed there were a number of key drivers for the increases in recent years.

"Whilst there is no doubt that claims experience has worsened in recent years with pay-out ratios (being the percentage of claims paid compared to the premiums collected) increasing from 53 cents in every dollar in 2010/11 to nearly 65 cents in 2013/14, we believe that much of the increase follows a sequence of significant discounting by insurers vying for key superannuation books during 2010 and 2011 and this is borne out in the research," he said.

Gee said the anecdotal evidence suggested funds that did not pass on premium reductions to members during this time but instead afforded members with increased levels of cover for the same cost were now bearing the brunt of significant premium increases compounded by higher levels of cover.

Looking at possible answers, the SuperRatings analysis suggested that funds re-consider their overall insurance design, including levels of cover, disablement definitions and Automatic Acceptance Limits to ensure these were appropriate for their membership bases.

SuperRatings executive manager, Consulting, Wendy Tse said SuperRatings assessed funds based upon a number of criteria and within its analysis, noted many funds continued to offer composite rates across both male and female categories, albeit most funds were now differentiating premiums by occupational categories.

"Funds need to reconsider the generous AALs and the differentiation of premium rates to ensure any premium increases are appropriately at individual categories rather than being borne by the total membership to minimise the possibility of cross-subsidisation between occupational, age and gender categories," she said. "In addition, funds should ensure that their TPD definitions are closely aligned to the requirements of their membership and should ensure that any potential loopholes in policy definitions are closed, so as to minimise the risk of members claiming benefits for which they are not genuinely entitled."