Insurers pricing in PYS claims expectations

Group insurers have been factoring in the likelihood that those inactive superannuation fund members most likely to opt-in to insurance inside superannuation are those most likely to claim, according to a new analysis from Willis Towers Watson.

The analysis, released this week, said there was an unintended consequence at the heart of the Government’s Protecting Your Super (PYS) changes and that was to mandate a one-time opportunity for members to select against their fund at 1 July, this year.

“In response, insurers are pricing for the expectation that members more likely to claim will be the first group choosing to opt in to insurance,” it said. “This ‘selection risk’ will, to some extent, be ongoing as future inactive members are required to opt in, however the dominant selection risk is this once off event at 1 July 2019.”

The analysis said a key driver of this selection risk was the assumed opt-in percentage and that while most insurers appeared to be initially pricing for five to 10 per cent of inactive members opting into insurance, Willis Towers Watson was observing several funds with actual opt in rates around 20 per cent, particularly where a simple digital opt-in facility was available.

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“These atypically high levels of member engagement should help funds push back against insurer pricing, help to drive down selection risk and therefore reduce premium changes,” it said. “Funds that are deferring premium changes until after 1 July 2019 will know actual opt-in rates and will do well to ensure their insurer is appropriately pricing for this.”

The analysis said that the funds likely to best handle the Protecting Your Super changes best were those with robust and complete data.