Incomplete insurance data could cost you more

By Stephanie Aikins

December 14 2018
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Members entitled to life insurance in their superannuation may end up paying more in fees than they should, a life insurance advisor has warned, as the data used by actuaries to determine pricing may be incomplete.

Suzie Brown, general manager of distribution at Integrity Life, said that although she welcomes the federal government’s proposed changes to insurance in superannuation, she is concerned that the data to be used by super funds’ incumbent insurers to determine the number of members eligible for opt-in insurance – and, therefore, to set insurance pricing – could be incomplete.

“There is a ripple effect with how you price insurance when you start to change the shape of the membership,” she said.

“There are a couple of things that the actuaries will look at, and what a lot of funds will be concerned about is the integrity of the data they’re relying on.”

The reforms, which are part of the government’s ‘Protecting Your Super’ package, will see life insurance in low balance superannuation accounts, accounts of new members aged under 25, and accounts that have not received a contribution for 13 months, all changed to an opt-in basis.

This was done in a bid to reduce super balances being gobbled up by insurance premiums that may not be needed.

However, the opt-in measure will not be applied to workers in occupations deemed ‘dangerous’ who could potentially benefit from default insurance.

According to Ms Brown, these changes could impact the capacity of incumbent insurers to offer accurate pricing to their associated super fund.

This is because the legacy systems used by insurers may be missing certain data points needed by actuaries to determine the full volume of members impacted within a particular fund, as this information has not previously been captured.

“Historically, the industry hasn’t recorded all the parameters which are now required for a full and accurate data set, which allows for future pricing of the fund based on historical claims,” she said.

Ms Brown said this potentially could have an adverse impact on members who continue to be eligible for insurance under their super.

She warned that insurers may be conservative in their assumptions of the number of members who do not require insurance, causing them to offer a higher price to the super fund – prices that will then be passed on to members through fees.

“If there’s gaps in the data, there’s assumptions made that impact on price,” she said.

“This can lead to conservatism and a negative impact on repricing. The more assumptions made that are conservative, it pushes the prices up and your member ultimately gets impacted.”

Moving forward, Ms Brown said it will be important for super funds to meet their obligations to members, and ensure they are not hit with higher than necessary fees. Doing so would involve getting a second opinion on insurance pricing offered by their incumbents, she said.

“I’ve been talking to a lot of funds at the moment saying, ‘Just get a second opinion,” said Ms Brown.

“This helps fulfil trustee obligations to challenge the pricing assumptions of the incumbent insurer.”

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Retirement