YFYS stapling changes biggest issue for group insurance

The stapling proposal in the Your Future, Your Super (YFYS) regime and how superannuation funds will attract new members will create the biggest challenges to the group insurance model, according to a panel.

Speaking at the Financial Services Council (FSC) Life Insurance Summit on Wednesday, Melinda Howes, BT Superannuation managing director, said the biggest change over time was how would large corporate funds still have attraction.

“Because at the moment, whenever I join a large employer, I’m in that super fund – that’s my default, so now the default will be the fund I bring with me,” Howes said.

“It’s only people that don’t have an existing fund and are entering the workforce for the first time that will enter their employer’s chosen default.

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“On 1 July, the music stops and big corporates won’t have an automatic inflow of new members – a lot of them will have attractive propositions to put in front of their new staff – but the staff will have to elect to go into that fund.”

James Carey, MetLife chief group insurance officer, said there was a real question over risk appetite.

“In order to achieve an automatic acceptance limit, insurers would need to see at least 75% of employees joining the default fund and obviously that is unlikely to occur going forward,” Carey said.

“There’s a question around are insurers willing to lower those thresholds and I don’t think anyone necessarily has the answer to that question yet.”

Carey said the other big dynamic that was going to play out was how the big funds that were no longer able to have a clean flow of new members joining their membership would react.

“Those funds are going to see an ageing membership profile and that’s going to put a lot of upward pressure on premium rates too,” Carey said.

“It’s going to be interesting to see how funds start to attract these individual members to their fund and try and stem that ageing tide, that for me is the new battleground.”

Sean Williamson, MLC Life Insurance chief group insurance officer, said some funds would have a strong flow of new members and probably be able to retain most of their existing cover commencement terms, but others won’t.

“Trustees need to be thinking of insurance risk claims as well and what is the best way to improve or increase the level of underlying members joining,” Williamson said.