Super fund insurance ‘loopholes’ revealed
By Michael Bailey
Superannuation choice will put funds’ insurance offerings under the spotlight like never before, and lead to a tightening of criteria for coverage, a survey has predicted.
Conducted by consultancy ChantWest for the Investment and Financial Services Association, the survey found massive discrepancies between the 52 funds it analysed from the retail corporate, retail personal and industry fund worlds.
For example, a 50-year-old blue collar male could pay as little as $130 a year for $100,000 of death and total permanent disability cover in one fund, but $2,932 in one of the other funds surveyed.
While automatic acceptance levels (coverage provided without medical evidence) were an average two-and-a-half times higher in retail corporate funds than industry funds, Chant West’s Warren Chant said industry fund coverage was cheaper and was skewed in favour of older, blue collar, male and smoking members due to cross-subsidisation.
Chant said members swapping from a retail corporate to an industry fund after choice would need to be careful, as they would probably need to supply medical evidence to retain the higher level of cover they had enjoyed, and would be uninsured during this transition period.
Personal superannuation products currently pay the most attention to occupation, gender and smoking status in structuring insurance products, but Chant said the introduction of choice would highlight some of the “loopholes” that exist and trustees would move to close them.
“A smoking, middle-aged bloke doing manual labour could move into one of the white-collar industry funds, Finsuper or CARE, and pay a fraction of what he had been for the same insurance,” Chant said.
IFSA chief executive Richard Gilbert said that insurance was as big a cost to most super fund members as was management and administration fees, yet it had been “largely overlooked” so far.
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