The role of insurance in superannuation has attracted a lot of attention and scrutiny in the last few years and when I look back to 2017, I am amazed at how much has changed in the intervening period.
At the start we were concerned about account erosion, multiple accounts, duplicate insurance, coverage definitions and the claims process. Since then we have developed the Insurance in Superannuation Code of Practice which addresses most of these concerns while the Productivity Commission and a Parliamentary Joint Committee have conducted their reviews. The Government of course introduced the Protecting your Super (PYS) package last year and in its substantially amended final form we are all now scrambling to work out how to implement it by its very tight deadlines. The Royal Commission also looked at insurance in superannuation, but I think it is fair to say that in a broad sense it found little to criticise.
So where do we go from here?
The absolute priority is implementing the PYS changes and I know you would all have devoted considerable resources to this end – whiteboards, drawing up process maps and roadmaps, setting up working groups, and putting aside innovative projects and plans that you’ve had in place for a number of years in an attempt to meet the looming deadlines. To support you we established a cross-industry implementation reference group so that we could approach the Government and regulators in a coordinated way and I believe this, and the sharing of information, has provided a useful resource for funds as they attempt to meet these challenges.
Once the PYS dust has settled we need to look at the new regulatory environment that we find ourselves in. The Royal Commission did not find much at fault in the provision of insurance through superannuation, but it will have an enormous impact on the way the regulators go about their business. We are, in my view, moving to a regulatory style with a zero tolerance for errors. The need in the future for flawless execution will affect the delivery of insurance just as much as the other aspects of any fund’s business operations.
A big contributor to attaining flawless execution will be innovation, primarily digital and technological. For innovation to work at its best we need it to emerge from a marketplace or a contest of ideas. We need the purveyors of new ideas to meet their critics—consumer, industry and member—and have those ideas tested and proven. It may sound paradoxical, but we also need to be able to bear failure in innovation; you can’t innovate if success is a pre-condition. How well we explain the benefits of risk-taking in the development of new systems and processes to the regulators will be a real test for us in the coming years.
In the end we must be sure we have products that are fit for purpose, processes that deliver seamlessly and insurance benefits that meet community expectations, and of which we can be proud. When members, consumer groups and the media challenge us we need to be able to point to an evidence base that supports the suitability and delivery of superannuation insurance products.
In establishing the merits of insurance, we also must be able to communicate to our members and especially our critics, whether that be a member who feels that he or she has not been treated fairly or a journalist with a story to write. I think we sometimes tend to talk in relatively abstract terms when defending the role of insurance in superannuation. For example, we talk about loss income ratios, pay-out ratios, we talk about vulnerable consumers and more generally about engagement and communication protocols, whereas we need to match our message with the register of our audience.
Another area where there is genuine room for improvement is the standardisation of definitions or what the Royal Commission described as universal terms. I know many of you are cautious about this idea because there is a perception that this may lead to a one-size-fits-all approach or constraints on benefits tailored to specific industries or occupations. But as Jenni Baxter of Rice Warner pointed out at our recent Spotlight on Insurance event, does it really make sense for there to be a patchwork of exclusions for default TPD cover more likely derived from the accumulation of definitions over time than a conscious decision on the part of the fund? Or where there is an exclusion such as Act of War for there to be substantially different wordings across different policies for the same exclusion?
This is why ASFA is participating in a project which will look at simplifying and standardising definitions to make insurance policies easier to understand and compare where possible, but with the overriding aim of maintaining trustees’ ability to tailor benefits to the specific needs of their members. After all, the tailoring of benefits, including insurance, to the needs of a fund’s membership, and cohorts within that membership, will increasingly define a fund’s value proposition.
I know it is hard given the immediate challenges we face but it is worthwhile occasionally to step back to look ahead and consider what success might look like in the future. Let’s say in 2022…
PYS will be a fairly distant memory, the Code’s measures will have been implemented as will the Royal Commission’s recommendations. Setting aside the possibility of further changes and assuming the habitually underperforming funds have been dealt with, funds will be providing quality and value for money retirement outcomes for members. When those members are unable to work before reaching retirement they will benefit from targeted and affordable insurance, efficiently delivered, that will compensate them for not receiving the retirement benefit their peers will receive, and help them and their families to deal with the hardships illness, injury and death can cause. Where a member is not eligible for insurance, he or she will understand why.
Our critics would say this picture is fanciful, but I think it well within our reach.
