Most Australian super schemes provide benefits to members or their dependants on disablement or death. Typically, the cost of that insurance is deducted from the accumulated balances of the members. Those insurance costs are now rising rapidly almost across the board. Increases of 50% to 100% are common.
As a result, fund members will see large increases in the amount deducted from their balances to pay for the insurance. As a sad indictment on the engagement of members in their schemes and benefits, many fund members do not even know that they are insured.
The reason for the premium increases is clear – claims are higher than premiums collected.
That situation has been driven by a variety of factors over recent years, including:
- competitive forces driving premiums down – many insurers wanted new business badly enough to accept an unprofitable book of business knowingly;
- weak underwriting standards such that all risks, good and bad, were accepted on standard terms – people with pre-existing medical conditions could join a number of funds and gain cover without having to provide any evidence of health;
- an increased propensity to claim on the part of members, partly driven by a concerted campaign by high street lawyers – some vexatious and aggressive claims are expensive to defend and sometimes it is less costly to give in.
This combination of factors meant that much group risk business in Australia was running at a loss and this could not be sustained. Now, the insurers are acting and premiums are being restored to proper levels.
As a member, or employer sponsor, it is important not to over-react. Risk benefits are important. In many cases, Australians are under insured against death and disablement risks. The rise in premiums, while proportionately high, is not a price gouge. It reflects the fact that premiums are almost entirely a function of the cost of claims. If premiums are rising, it is because claims are rising.