During this session, the question was raised around how the draft Insurance in Superannuation Code of Practice for trustees will be received when released in September 2017 – and where the future of good practice lies in the group insurance space. The context for this conversation was around the potential blurring of lines, given the rapid onset of the ‘gig economy’ where temporary positions become more common and organisations contract with workers for short-term engagements, and mass individualisation. Should we continue with the current ‘opt out’ system, or should Australian’s ‘opt in’ to group insurance?

Martin Fahy – Chief Executive, Association of Superannuation Funds of Australia – opened the discussion to firstly reflect on the positives. “By any measure insurance and superannuation is working,” he said. “The reality is that (opt out) group insurance works. It’s not mathematically perfect, and it doesn’t deliver a mathematical optimum. But what it does is deliver a very robust solution across a range of circumstances for a range of people, to provide them with security in retirement.”

Where group insurance sits as the gig economy rises remains to be seen. “Group insurance is designed to exploit the benefits of scale,” Martin continued. “Given we are moving into an increasingly individualised world – marked by mass customisation – it is tempting to believe that the reality of group insurance falls short. But in a world of ‘me and my concerns’ we need to make sure we don’t expose vulnerable people to significant losses – that being, large numbers of people increasingly sitting outside group insurance; with less affinity than ever to their occupations.”

Martin noted a word of caution in the rush to personalise the member experience. “However tempting it is to believe that the solution is to mass personalise and mine the data till we optimally arrive at a premium that is perfect for an individual; you do so at an enormous wider societal risk. That being, you will place a significant burden on the public purse, and you will erode the group benefits that you get from the efficiencies and the scale – and you will leave the individual exposed.”

While mass personalisation presents a logical option, Martin queried how this will manifest over coming decades. “We need to think beyond the immediate at the moment. In the face of government regulations we need to think about what kind of insurance cover we want Australians to have in the next 10 years. Please be really careful that – in the search for some sort of individual optimisation of premiums and cover – we don’t leave large numbers of individuals exposed, and we don’t burden the public purse.”

Moving onto the code for trustees, Ged Fitzpatrick – senior executive leader, investment managers and superannuation at ASIC reported positively on recent changes.

“ASIC is very supportive of the proactive work being undertaken by the Insurance and Superannuation Working Group,” he said. “This initiative will help to build a reform approach, including the development of the Code of Practice to help retain the value of group insurance for super fund members.

“The successful implementation of the changes that are being developed by this group – in particular a binding code of conduct requiring trustees to focus on member deeds – will work towards addressing many of the concerns identified by ASIC, and by others in the broader community,” said Ged.

Looking to the future, Ged believes that this working group will help to illustrate some key decision points ahead. “It will help to address concerns that look at how we operate in this space, and whether that means we should operate in this space,” he said.

A robust conversation then ensued between Martin, Ged and Nick Kirwan – policy manager, life insurance at the Financial Services Council – on the value of the metric of open disclosure, and its practical relevance to the member experience.

Nick later went on to share why group insurance matters more than ever, with respect to shaping future policy decisions.

“More than one person every minute suffers a life changing illness that will prevent their ability to work,” Nick said. “The take up we have in this group space means that people can access insurance benefits they may not otherwise be able to get.

“This brings about vast economic benefits for the ‘typical’ beneficiaries of life insurance.”

Nick posed the question: who would lose out if life cover and super wasn’t there?

In response, he continued. “The typical recipient or beneficiary is actually a woman. She’s aged between 35 to 40 and she is a widow with young children – currently she typically gets around $125,000.

“So the question for policy makers is a simple one. If we take away default life cover and super who will look after the 17,500 people like Hannah? And how will those people cope without that $2.5 billion per year?” Nick asked, citing a story about one such beneficiary, a young mother named Hannah.

Adrian Rees general manager, APRA later discussed the sustainability of group insurance, highlighting how insurers and trustees need to work together to think carefully about the proposition they are offering to fund members. In doing this, Adrian said that insurers and trustees can ensure “the offers are appropriate and what the members are looking for.”