Opt-in insurance in super irresponsible

The arguments calling for the removal of insurance from superannuation are baseless, according to Maurice Blackburn.

In a submission to the Government’s Retirement Income Review, the law firm said these calls were flawed assumptions.

The calls were:

• That people do not derive value from insurances in superannuation;
• That insurances in superannuation merely discourage people from seeking tailored insurance cover on the open market; and
• That Workers’ Compensation systems provide a sufficient safety net to cover the income foregone through injury.

“There is a growing body of evidence that the disengagement of consumers with their financial situation in general makes them less likely to opt into insurance, even if it is entirely appropriate for their circumstances (for example, if they have dependants),” the submission said.

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The firm pointed to Rice Warner analysis that found if group life insurance were to become opt-in, many individual’s only recourse would be to seek retail type insurance and would act to reduce their access to insurance or make it only available at unaffordable premium rates.

“This shows that disparity in workers’ access to insurance is not restricted to availability. The premium cost impact of functionally removing insurances from superannuation has the potential to be profound for some,” Maurice Blackburn said.

“The underinsurance problem in Australia has been well documented. Member disengagement data would indicate that worryingly few consumers consider their insurance arrangements at all.

“Further, for those who do decide to seek their own coverage, it cannot be assumed that the product they end up with will be in their best interests.”

The law firm said insurance in super had a critical role in helping the under-insurance problem by providing a safety net of affordable default group cover.

“It would be irresponsible, from a retirement savings perspective, to simply leave it to individuals to proactively obtain their own insurance. The consequences of doing so would be to the detriment of retirement comfort and security,” it said.

On Workers’ Compensation systems, Maurice Blackburn said it could not take the place of insurances providing for retirement income, should a working aged person become injured.

It said this was because:

• In some jurisdictions, Workers’ Compensation will only cover a worker if their employment is a significant contributing factor to the injury. Total and permanent disability (TPD) coverage has no such requirement. In our experience, more than half of all TPD claims we assist with have nothing to do with the work environment, so would not be covered by any state or federal workers’ compensation scheme;
• Workcover is focused on wage replacement while the injured worker is engaged in rehabilitation and return to work programs. TPD and Death coverage are focused on circumstances where the worker cannot return to any suitable work due to injury or illness or death;
• Workers’ compensation schemes vary greatly from state to state, and many are inadequate in their long-term support for injured workers; and
• The Fair Work website tells us that: “Some awards and registered agreements may give employees an entitlement to superannuation while they’re away from work on workers compensation”. Obviously, from this we can conclude that some don’t.