“I would argue that insurance through super evolved to fill a need identified by the labour movement, and that other funds saw it and implemented it themselves,” he says.
When the Keating government introduced the super guarantee in 1992, insurance was not a part of this, but many funds offered it anyway. It first became a formal part of superannuation under the Howard government’s 2005 Choice of Fund reforms, which required default funds to include a very limited amount of death insurance.
But Coates says it received its most serious treatment in Jeremy Cooper’s 2009 Super System Review, which dedicated 22 pages to the issue of insurance through super, and concluded that it should be automatically included on default super products.
“The Cooper Review is important, because it determined that without default insurance, people in the default sector wouldn’t have cover,” Coates says.
The Cooper Review led to Labor’s 2013 Stronger Super reforms. Under these reforms, any super fund wanting to offer a default “MySuper” product had to include life insurance. People who don’t choose their own super fund – which is most people – are automatically put into a MySuper product, and therefore automatically have death and total and permanent disability cover.
But while insurance was considered in the Cooper Review, its 22 pages are dwarfed by the almost 50 pages it received in the Productivity Commission’s report. Most of those are filled with criticisms, which are neatly summed up by this statement: “[T]he blunt one-size-fits-all approach of group cover means that insurance is poor value and does not meet their needs and preferences, but because they are uninformed and disengaged they do not elect to opt out.”
The commission recommended an independent public inquiry examine “the appropriateness of insurance provision in superannuation products generally, including on an opt-out basis in default MySuper products”. In other words, it should question whether Australians should automatically be made to pay insurance premiums out of their super balances at all.
Premiums may rise
While such an inquiry would likely result in major changes to how insurance is provided through super, it is unlikely to result in the end of the opt-out regime altogether. Submissions to the Productivity Commission suggest all parties broadly support the regime, from the union-linked industry funds and big bank-linked retail funds (which disagree on most things) to consumer groups like CHOICE and Consumer Action Law Centre.
Alex Dunnin, director of research at superannuation research house Rainmaker, says once the serious issues highlighted by the Productivity Commission – such as multiple accounts and too much cross-subsidisation of the old by the young – are dealt with, group insurance through super would still provide “tremendous value”, and then any broad study would reach this conclusion.
However, he said reforms would necessarily push premiums up. “If young people no longer pay premiums, insurers would have to make up the difference from older people. That could mean premiums would rise by 20 or 30 per cent. But why shouldn’t that happen?” he says.