Life insurance universal terms and conditions need reviewing

While the corporate regulator’s report on insurance in superannuation shows there is value in the product it is also the “perfect forum” for the industry to cast an eye over universal terms and conditions, according to Berrill and Watson. 

The superannuation and insurance lawyers’ principal, John Berrill, welcomed the report and told Super Review that as the returns on total and permanent disability (TPD) and death were very high, at 87 cents and 80 cents respectively, it indicated that the products were well targeted and providing value for money for consumers. 

Not surprising, Berrill said, income protection was less value for money given the fact that it involved more ongoing administrative expenses.  

However, he noted, there were some areas that needed addressing as some products limited the liability for the insurers by applying very restrictive activities of daily living tests meaning “the ability to claim is narrowed significantly and there are some products where premiums are high because the risks for claim and the client experience is poor”. 

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“These need addressing and they were spelled out in the Royal Commission in which Hayne put down when he recommended there be a review of investigation into whether universal terms and conditions could be put in place,” Berrill said. 

“So, for example to have standard definitions for TPD, income protection, conditions around what default benefit periods are for income protection i.e. whether they should be limited to two years, rather than a default term, what exclusions should apply, and high risk occupation definitions.” 

On concerns about younger people and those with strict terms and conditions not getting value for money, Berrill said there were many group policies that addressed this.  

He said the amount of cover depended on a member’s age bracket and those in the 25-to-30 age bracket had higher default cover than those in their 50s and 60s as they were at greater risk of becoming disabled or to die.  

“So, the cover is tailored by a lot of super funds to accommodate that and that sort of levels the playing field on these concerns for value for money.  But do we need more work to look at universal terms and conditions having some sort of formula set for those? The answer is yes,” he said. 

“It all keeps coming back to this notion that group insurance in super is a very valuable product. It is a very important product for those whose working lives are cut short because of disability or families in relation to death. 

“It’s a crucial product but like all products it needs a review as it doesn’t have that level of prescription that other insurance products do and that needs looking at. 

“It’s simply not true to say that young people and those with small account balances have junk insurance. That is not correct and it’s an over simplification of what is a quite complex product design that needs an overarching review and prescription under universal terms and conditions to make sure it provides optimal value for money for the entire super membership.”