Auto-consolidation a 'minefield' for insurance
The cross-selling of insurance and other products by the major banks may become an issue as the Government moves towards the so-called "auto-consolidation" of multiple superannuation funds.
A roundtable conducted by Money Management's sister publication Super Review has identified past practices within some of the major banking organisations as a potential problem as superannuation funds, administrators and insurance companies grapple with how to handle the "auto-consolidation" process.
As well, roundtable participants warned of the risks associated with leaving fund members worse off.
Futureplus general manager, operations, Hayden King pointed to the fact that it had been the practice of the major banking organisations to pursue "share of wallet" from clients, and that this was likely to have implications for the implementation of the Government's Stronger Super changes.
"…It wasn't so long ago that the biggest thing of the retail providers was share of wallet," he said. "And so the more product you sold to a client the better you were. So there was almost a push to have more than one account whilst everyone said we'll consolidate - and all they did was make companies bigger, but it was about share of wallet.
"So there are people out there that have probably actively been sold more than one account," King said.
Head of product at superannuation administrator, Australian Administration Services (AAS), Peter Johnson said he believed the push towards the auto-consolidation of multiple superannuations continued to represent a "minefield" for the industry.
"We've got a lot of insurance cover that's employment-based, it's account-based and they [the members] move and then you merge funds - and for us it is a real concern as to how are you going to make sure that people don't lose," Johnson said.
"It looks like, from where we sit, a lot of members are going to finish up losing their insurance as an unintended consequence," he said.
Energy Super chief executive Robyn Petrou said it was important not to lose sight of the risks associated with super fund members being disadvantaged by the auto-consolidation process and its impact on insurance.
"…You've got to look at it from the point of view that you're actually reducing members' benefits when you consolidate," she said.
"….How do you manage that risk if you look at it from a risk point of view? When a member's time [comes] to claim and they find that their benefit has reduced from $100,000 down to $50,000 because we've got two accounts together 'but don't worry they saved $10 that year on administration fees' - it will be a very difficult conversation to have," Petrou said.
The full roundtable will be published in the January edition of Super Review.
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