Recent Press Coverage has Raised Concerns

The Sydney Morning Herald ran an article on superannuation-owned insurance cover, on Saturday 28 May.

The article can be accessed here.

The article raises 3 main issues:

  • In return for lower premiums – some employer or industry suiperannuation funds “have accepted fewer services and tighter definitions”,
  • “…super funded life insurance policies offer “virtually no protection because they are ‘any occupation’ policies, and will pay out only if the person is totally and permanently disabled, or dead”, and
  • Contract concerns – associated with new superannuation-owned TPD products being associated with rehabilitation programs, for example.

As a result, the article has provoked some uncertainty, which we address below:

  • The “any occupation” definition.​
    • This definition relates to Total and Permanent Disability insurance.
      • The insurer will only pay a claim to the superannuation fund where the insured is TPD’d and unable to work in any occupation. For example: A doctor who is TPD’d and unable to continue to work in his / her profession, but can make sandwiches – will not be paid on claim.
      • The Trustees of the superannuation fund may only make a distribution to the member if the TPD condition meets the TPD definition defined in the Act governing superannuation funds. The Superannuation Industry (Supervision) Act “SIS Act” definition of TPD is substantially an “any occupation” definition.
  • The insurance industry has therefore sought to align their “any occupation” policy definitions with that of the SIS Act – ensuring that members meeting the policy definition on claim also meet the SIS Act definition – enabling the flow of claim proceeds from insurer, to superannuation fund, to the member.

Therefore, superannuation-owned TPD insurance cannot in isolation be relied upon in all situations, to address the financial consequences of being medically unable to earn an income. A combination of “Own” occupation TPD cover held outside of superannuation, together with income protection insurance will address any gaps in cover.

  • Contract concerns, decreased services and tighter definitions.
    • ​​​These concerns are valid but not necessarily unfair or inapproriate given the objectives of the superannuation funds and insurance companies – which may be different to those of the member.
      • Group, and Employer / Industry Superannuation Funds have growth in funds under management as their primary objective. A secondary objective is to provide a base level of cover to members generally – who tend to be disengaged when it comes to their retirement and risk management responsibilities.
      • These funds need to keep premiums affordable, whilst pricing appropriately for the risk inherent in a group of individuals who have not been underwritten (assessed) individually.
      • Given the above priorities, and with recent elevated claims experience, the only lever left is to tighten policy definitions, and reduce eligible claims.

In context then, the commentary in the SMH should not be a surprise. What it does highlight however is the importance of a thorough review of one’s risk management strategy in relation to a medical or accident related loss of earnings event.

By extension, obtaining advice from a principal adviser in an unaligned and independently owned advisory business is critical when designing cover appropriate to one’s specific requirements.

When providing advice to our clients on their insurances, we address the relative advantages and disadvantages of our clients existing insurances, and how or whether these have a continuing place in the recommended insurance portfolio. Our core value of placing our client’s interests ahead of our own is reflected in the annual disclosure of the remuneration we receive – which represents the highest standard in the industry.