Super Consumers support Life Insurance reforms
Super Consumers Australia at CHOICE is urging the parliament to pass the Putting Members Interests First (PMIF) bill; and if legislators are contemplating exemptions, we recommend that fund trustees are required to provide robust evidence of need for specific groups of people.
Simple reforms before the parliament would improve life insurance in superannuation. The draft legislation will make cover ‘opt-in’ on all new accounts for those under 25 and with balances under $6,000. Importantly it will place a greater onus on trustees to engage with and communicate the value of insurance cover to members.
But lobbyists are using shock tactics, circulating a folder containing examples of real and tragic accidents, dubbed the ‘Book of Death’, to scare politicians from enacting sensible policy changes.
Xavier O’Halloran, the director of Super Consumers Australia at CHOICE, described the sector’s lobbying as “mafia-like”, saying:
“Life insurance lobbyists are using shock tactics to protect their profits.”
“We remain dismayed by the reluctance of insurers and super funds to design and price products for the needs of their members.”
“We all want a system that supports people and their families who need assistance due to death or disability, but the cold hard truth is that change is long overdue, and the life insurance sector has been dragged to this point, bitterly and petulantly.”
Successive governments, parliamentary committees, and ASIC have all recommended simple reforms to life insurance in superannuation, but the sector has been using emotional blackmail to block reforms for years.
Super funds are required to offer life insurance to most members. This obligation is poorly understood. One in four people do not even know that they have coverage. This has allowed insurers to make fat profits from perverse outcomes.
People without dependents or liabilities are paying for life insurance that they likely don’t need. Sneaky exemptions to prevent payouts are buried in the fine print. For low income earners, premiums can quickly erode retirement balances.
The Productivity Commission found multiple examples of ‘egregiously-inferior’ outcomes, and concluded that compulsory insurance in superannuation is providing poor value, especially for young workers with no dependents.
Treasury estimates the overhaul would cost insurers up to $3 billion in reduced premium revenues and save five million Australians several hundred dollars each year — all of which will stay in the super system, patiently growing over time, giving people more money in retirement.