Modern mutuality: realising lifetime value for super members
One of the great developments in the Australian economy has been the emergence, nearly 150 years ago, of a series of mutual companies or friendly societies that were designed to raise funds which could be used to provide common services to all members of the organisation or society.
Many of Australia’s heritage wealth management companies arguably rose to their peak commercial and community value when they were structured as mutuals. The mutual structure was a model fundamentally grounded in genuine alignment between the organisation and the customer, not just at claim time but throughout the entire relationship.
In the 1980s, a wave of similarly-designed companies were created in response to an agreement between the Hawke government and the trade unions – superannuation funds. For the most part, they represented a renewed ability for people to invest, and be protected, together.
Over time, the super model has also evolved into an efficient distribution system and value for money life insurance system, which is leading by world standards. It is both a highly efficient and customer-centric model, returning a very high proportion of premiums to members in claims payouts.
In terms of benefits to consumers and the community, it is a world-leading, inclusive model that offers Australians excellent value and provides access to insurance to many millions of Australians who otherwise may not be able to access life insurance at all.
While the mutual structures of the past may no longer exist in that original form, the principles which underpin them – community, members-first, shared interest, collective benefit, and alignment – remain as important and relevant as ever in superannuation funds today.
A SOCIETAL BENEFIT BY DESIGN
Super funds’ single most powerful attribute is that they are, by design, intended for broad-based social benefit. By individuals collecting their savings for retirement and life-risk protection premiums together, they do better than they would on their own, more often. In simple terms, they are stronger together, and that can only be a good thing.
Likewise, what makes insurance through super so vital is its very nature, representing an incredibly important, and high value, form of protection which those members may not otherwise be able to access.
Australia’s insurance through super model leads the world in terms of value for money for customers and access to life insurance, with currently around 94 cents in the dollar returned to members as benefits on claims paid.
In the 12 months to 30 June, 2020, Australian super fund members received $6.3 billion in claims paid through group insurance, including around $4 billion in living benefits, helping people to continue living their lives while recovering from serious illness or injury.
Clearly, there is no question about the value of this important aspect of the super system in supporting members during what are often the most difficult times in their lives, however the opportunity exists for life insurers and our fund partners together, to consider how we can further improve the insurance in super system and add greater value beyond claim time.
FINDING OPPORTUNITIES WITHIN THE CHALLENGES
Right now, there are at least two major challenges facing our super funds, as they have become larger and more complex.
First is the ever-rising tide of political challenge and regulation. This tide represents a continuous, and in some cases necessary, compliance overlay that draws upon the capacity of teams whose sole purpose is to support members.
However, if we accept that political challenge and regulatory reform are undertaken with the intention of making a good system even better, then by extension we should also be looking at these aspects of the industry as an opportunity to support change which will enable super funds and their partners to do more for members over the long term.
The second challenge, and by far the greatest, is the general engagement of members within the super funds. More than ever, members are now required to understand and take action in relation to their retirement savings and risk protection. Despite this, engagement remains at levels well below other consumer products and services.
While we saw through the implementation of legislation over the last 24 months, the heightened levels of conscious engagement that come with the prospect of underlying changes that may impact a member’s retirement savings, these events are the exception, not the rule.
To understand how we can drive more ongoing engagement with members and enhance the value they derive from their relationship with their super fund – and by extension their group insurance provider – we need to go back to those aspects of their lives that members hold most dear.
ENHANCING THE MODEL FOR LIFETIME VALUE AND ENGAGEMENT
TAL works with a broad range of super funds to provide life insurance and disability protection to their members, and the engagement of those members is fundamental to the way in which they understand and value their cover.
In a traditionally low touch, low engagement category, finding new avenues for ongoing member engagement is critical to member confidence and value, and as we consider the challenges outlined, an opportunity exists for life insurers to work collaboratively with fund partners to ‘supercharge’ their engagement models.
Life insurers can play a key role in providing opportunities for funds to demonstrate greater value to members throughout the life of their membership, enabling a more positive impact to be made for all Australians and enhancing the value exchange in a way that brings the principles of mutuality to members in a contemporary context.
One critical opportunity lies in the importance of improving financial literacy for super fund members. As noted in the Retirement Income Review, a lack of financial literacy is impeding too many Australians from understanding the super system and the benefits it provides for them.
The recently passed Your Future, Your Super legislation means members will need to look at super and insurance more carefully, so there is a natural opportunity for funds to educate and better support members when making decisions.
Reminding members about what their fund does, or encouraging them to take action, can increase their confidence in their own future. Through TAL’s ‘Discover’ proposition, we’re helping our super fund partners to raise member awareness about life insurance products and their options, and to engage and empower them in their decision making.
Moreover, as more Australians move into the retirement phase of super, they will need to make key decisions directly impacting their quality of life, and the ability to drive greater engagement with members through the lens of financial literacy in advance of that, means funds and insurers together can play an ongoing, meaningful role in supporting these members.
EMBRACING HEALTH TO DRIVE MEMBER VALUE
Another key pillar for member engagement lies in supporting them with their other needs, such as holistic health and wellbeing. Supporting Australians to live healthier lives, remain productive and retain their abilities to earn an income is aligned to the system of saving for a comfortable retirement and also maintaining the overall affordability of life insurance in super for all members.
Working together, super funds and life insurers play an important role in our community, supporting Australians in the worst of circumstances with life insurance and disability benefits when they are unable to work due to serious injury or illness, or permanent disablement.
While we can, and do, facilitate access to health support at the time of a claim, there are broader opportunities to engage members through the lens of their health, such as through preventative mental health initiatives.
With almost half of all Australians likely to experience a mental health condition in their lifetime, there is significant opportunity to be realised in helping individuals identify and manage mental health challenges to prevent the onset of conditions.
Beyond health, insurers and super funds together should always be thinking about ways in which we can improve the system, and the value that is delivered to members throughout their lifetime.
Lifetime value should support more services aligned to saving for – and spending in – retirement, and life – or lifestyle – protection, but not necessarily limited to investments or insurance.
Mutual by design, our super sector works as a world-class savings and protection system, and we must rise above the debate and deliver on the promise of super by ‘supercharging’ engagement and ensuring lifetime value and more comfortable retirement for all Australians.
By finding ways to further support engagement and access to insurance through technology enabled education and advice, by thinking through the improvement of disability product and benefits, and considering how trustees and their insurance partners can work together on health prevention and support – before, during and after claims – we can bring the principles of mutuality to members in a contemporary way, and enable a more positive impact for all Australians.
Andrew Howard is chief commercial officer for group life and investments at TAL.
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