Conveying the importance of insurance to members is one of the biggest challenges that super funds face. Insurance is often seen as a cost rather than a benefit, especially for younger members, meaning funds need to be in a position to clearly communicate the advantages for individuals and for the system as a whole.
The government’s Protecting Your Super (PYS) package came into effect from 1 July this year and aims to reduce the erosion of account balances through unnecessary fees and costs. Part of the legislation involves the cancellation of insurance for members whose account has been inactive for 16 months or more. Based on early analysis conducted by SuperRatings, it’s clear that the PYS changes will have a significant impact across the industry. For the median fund, around 17% of insured members are expected to lose cover. For the quartile of funds most affected by the changes, this figure rises to over 23% (see table below).
|What percentage of insured members have lost cover?|
|Quartile least impacted||13.7%|
|Quartile most impacted||23.4%|
Based on an early analysis of member behaviour, it’s clear that members are more engaged with their insurance than was widely anticipated by the industry. According to SuperRatings, the median expected opt-in rate is around 20%. For a quarter of the industry, almost a third of members are expected to opt in, which is significantly higher than funds’ initial expectations. This suggests that inactive members are perhaps not as disengaged as commonly thought (see table below).
|Expected Opt-in Rates|
|Quartile least impacted||32.9%|
|Quartile most impacted||13.4%|
These results highlight the importance of fund communication in helping to convey the benefits of insurance and other member services. A member-centric approach to reinstating cover for members that opt in late is beneficial, with funds typically offering a 60 to 90-day reinstatement period. The provision of advice and insurance calculators will assist members in deciding whether to opt in and whether their level of cover is appropriate.
A variety of strategies have been used by funds over the last year to engage with this cohort of members. While traditional forms of member communications such as direct mail have been used in the past, funds have experienced success with email, outbound calling, SMS and digital marketing campaigns. There has also been significant coverage of these changes in the media, which has led to increased awareness and activity of members wishing to ensure they have the appropriate level of insurance coverage. But what’s clear is that, when presented with a clearly communicated choice, members are likely to engage and take action.
This is the start of the process, and undoubtedly it will be an evolving area that will pose different challenges for funds. A limited number of funds have passed on insurance premium increases, with a number indicating that their insurer has decided to wait and see what the overall impact of PYS and other changes such as the Putting Members’ Interests First legislation will be, and these funds may implement changes in the future. SuperRatings will continue to monitor the impact, but it’s anticipated that there will be upward pressure on insurance premiums as funds and insurers digest the changes.
Funds are operating in a different environment where there are conflicts between regulatory settings and potential claims that will emanate where insurance has been ceased for members. How funds are going to strike an appropriate balance when they’re in a somewhat invidious position will be one of the key themes that SuperRatings tracks in coming months.
This article is based on information from the upcoming Benchmark Report released annually by SuperRatings. The Benchmark Report is based on the most in-depth survey of Australia’s superannuation market, covering investment performance, fees, governance, member servicing, and insurance.