Group life insurance
7.1 This chapter considers issues associated with group life insurance,
including opt-out requirements, member awareness of cover, the impact of
premiums on small super balances, the continuing deduction of premiums from a
member's account despite that member no longer qualifying for cover, and
Opt-out versus opt-in requirements
7.2 The Superannuation Industry (Supervision) Act 1993 (SIS Act) requires
MySuper members to generally be offered life and TPD cover on an opt-out basis.
7.3 Many submitters and witnesses supported retaining the present opt-out
system. For example, both the Australian Institute of Superannuation Trustees and
Industry Super Australia argued that the opt-out model has helped to combat
underinsurance in Australia.
7.4 The Association of Superannuation Funds Australia (ASFA) submitted that
the evolution of group insurance over the past 20 years has seen up to 92 per
cent of the working population afforded
some type of insurance coverage that would otherwise not be in place. ASFA
While member engagement with insurance in superannuation is
typically low, some ASFA members have reported to us that up to 15 per cent of
members 'opt-up' and increase their default level of insurance cover, whilst
less than 5 per cent opt out and cancel their cover. This behaviour indicates
that fund members associate a high degree of value and benefit with insurance
in superannuation and that for many individuals increased levels of cover are
required to meet their needs.
7.5 Similarly, the FSC submitted that the majority of Australians would not
have adequate cover if it was not for their default, opt-out superannuation
fund arrangements. The FSC argued that the superannuation system has proved to
be the most efficient and effective means of providing an affordable level of
insurance cover to almost all working Australians. Over 90 per cent of the
working population are afforded some type of insurance cover that would not
otherwise be in place, particularly for those unlikely to have considered their
7.6 In light of the coverage afforded by an opt-in model, the FSC raised the
following concerns about an opt-in model:
In contrast, where there is an opt-in arrangement
significantly fewer people are likely to be covered. The average opt-in rate is
very low for voluntary arrangements of insurance cover, such as income
protection. An opt-in arrangement would result in more expensive insurance
costs potentially making cover unaffordable for many Australians who are already
Many Australians, for example those working in heavy industry
or suffering from a pre-existing medical condition, may not be given access to
cover under an opt-in arrangement.
7.7 Berrill and Watson Lawyers submitted that while improvements need to be
made to group life insurance, it has operated as a very efficient means of
delivering life insurance to Australians. Noting that the proportion of total
life insurance held within superannuation funds was 71 per cent for death
cover, 88 per cent for TPD cover, and 59 per cent for income protection cover, Berrill and Watson Lawyers argued that any significant movement away from the
current opt-out model would have huge adverse implications for the availability
of affordable life insurance and would drastically reduce the amount of
Australians who have life insurance.
7.8 The Australian Lawyers Alliance (ALA) submitted that opt-out cover in
superannuation is indispensable for retaining high levels of life insurance
cover for Australians. The ALA did acknowledge, however, that both the products
being offered to consumers, and the claims handling processes being used by
insurers, require improvement in order to balance consumer rights with market
7.9 Nevertheless, despite widespread support for the current opt-out system
in group life insurance, several submitters and witnesses raised specific concerns
about various aspects of the opt-out system, including some of the issues
discussed in the following sections.
Making it easier to opt out of
group life insurance
7.10 The SIS Act includes a requirement for trustees to allow MySuper members
to elect not to receive (opt out of) life insurance relating to permanent
incapacity benefits or death benefits in section 68AA:
(5) Each trustee of a regulated superannuation fund must
ensure that each MySuper member of the fund may elect either or both of the
- that permanent incapacity
benefit will not be provided to the member by the fund;
- that death benefit will not be
provided in respect of the member by the fund.
(6) The trustees of a regulated superannuation fund may
require that MySuper members who wish to make an election in accordance with
- must make the election in
relation to both permanent incapacity benefit and death benefit; or
- must make the election in
relation to death benefit if they make the election in relation to permanent
7.11 AMP informed the committee that customers can call AMP to opt out of
group insurance and that AMP is investigating ways to make that an easier
7.12 Treasury informed the committee that the government has tasked APRA with
making it easier for MySuper members to opt out of automatic life insurance
policies. Treasury noted that there is no guidance to funds on how to implement
the requirement to allow customers to opt out. Treasury also noted that there
were currently no regulatory impediments to trustees making it easy for consumers
to opt out. Treasury therefore suggested that:
The sense is maybe that trustees make it very easy to get
more insurance, but very hard to opt out of insurance.
[I]deally you would be able to go onto the fund's website and
you would be able to opt out by pressing a button, like you could press a
button now to apply for additional life insurance.
7.13 The draft Insurance in Superannuation Code of Practice would require trustees
to make the process of cancelling, or opting out of, automatic cover straightforward
and transparent for members. The draft code indicates that members should be
able to cancel through a fund's website, over the phone or via email. The final
version of the ISWG code appears to have retained most of these features.
Inadequate member awareness of cover
7.14 ASIC pointed out that superannuation fund members may often be unaware
that they have insurance cover, how to claim on a policy, or that the cover may
change or even cease in certain circumstances.
7.15 Furthermore, members may receive inconsistent information as a result of
trustees relying on data from employers. This issue is potentially exacerbated
when a superannuation trustee changes their insurance arrangements, which can
occur every three years. This can result in fund members not being aware of the
details of their current cover, and of any relevant changes to the claims
7.16 ASIC indicated that it is undertaking a review of the information
provided to consumers by superannuation trustees in relation to the underlying
insurance policy entered into by the insurer and the superannuation trustee.
7.17 CHOICE raised concerns about how information on group life insurance is
presented to consumers, submitting that application forms are confusing and do
not provide clear information about the cost of default cover. Instead, consumers are
directed to supplementary documents, such as insurance guides and product
disclosure documents. CHOICE indicated that these documents often display the
cost for units of cover which may differ across age groups, requiring consumers
to conduct mathematical calculations to discover the cost of life insurance
premiums. CHOICE argued that because such a small percentage of consumers read and
understand such documents, it is unrealistic to expect that consumers are
making informed decisions when deciding whether to opt-out of group life insurance.
Duplicate group life insurance accounts
7.18 During the inquiry, concerns were raised about the extent of duplicate
life insurance policies in group superannuation resulting from people moving
between occupations. The committee notes that, in some cases, people may
deliberately choose to maintain multiple group life insurance accounts.
However, evidence to the committee also indicated many people are unaware that
they have group life insurance and, potentially, multiple group life insurance
7.19 The Australian Taxation Office (ATO) data indicates that 40 per cent of
people have more than one superannuation account, with 15 per cent having three
or more. Thirty per cent of people under 25 have more than one superannuation
account. The greatest proportion of multiple superannuation accounts is around
47 per cent for 36 to 50 year olds.
7.20 CHOICE submitted to the committee that modelling indicates that
Australian consumers are potentially losing over a billion dollars each year
due to duplicate insurance through superannuation. CHOICE suggested that
younger consumers in particular are paying for insurance which does not match
their needs and is eroding their retirement balances:
Using current ATO figures on the number of duplicate
accounts, up $1.96 billion across the economy every year is potentially lost
due to duplicate insurance, an average of $131 per account holder. Modelling
from the Financial System Inquiry found that removing duplicate accounts could
increase superannuation balances at retirement by around $25 000 and
retirement incomes by up to $1600 per year. About two thirds of this cost or
$16 000 was due to duplicate insurance. This is clearly not an efficient
use of resources, with fund erosion due to fees ultimately leading to an
increased impost on the aged pension.
Negative impact on superannuation
balance for casual or intermittent workers
7.21 When a member ceases employment, the default payment of insurance
premiums will generally continue until an account balance limit has been
reached. This limit, set by the trustee, represents the point below which the
trustee considers benefits are being unnecessarily eroded by the premium
payment. Fund members with small balances may find that their superannuation
balance has fallen below the limit and may not always be advised or aware that
their cover is ceasing as a result.
No cover despite premium payments
7.22 ASIC informed the committee that, in some instances, consumers are
charged premiums when they no longer have cover. For example, cover may cease
after a person has left a particular employer. Yet, if the notification from
the employer is not sent to the trustee (noting that sometimes it is not clear
whether a person has 'left' employment, particularly for casual workers),
premiums continue to be deducted from the member's account balance. ASIC
observed that a member could reasonably infer from this that they have cover. However,
the fact that the member has left the employer may only become known when a
claim is lodged. While premiums may be refunded, the claim is likely to be
declined and the consumer is left without cover.
7.23 A similar situation arises when non-contribution is the employer's
failure to make compulsory superannuation guarantee payment, which can then
also lead to the member not having insurance cover they may require and believe
they have such cover, not realising their superannuation is not being paid.
7.24 On the other hand, there are policies that do not cease after a person
has left a particular employer. If the policy under the superannuation that a
worker had while at a previous employer does continue, then it may provide
coverage where a new policy would not. An example would be the return of a
cancer after a change of employer. The exclusion for pre-existing conditions
may apply for the new policy, meaning the worker would not be covered, but if
they have a policy in a still operative earlier account, that may cover them.
7.25 During the inquiry Treasury was progressing three processes that are
relevant to life insurance and superannuation. The first was a government bill,
introduced in September 2017, to amend the SIS Act to improve accountability
and members' outcomes in superannuation including MySuper. The amendments
propose a new law to require trustees to make an annual determination, in
writing, as to whether the financial interests of the members in the MySuper
product are being promoted. The trustee is required to have regard to a range
of factors including:
- whether the insurance strategy for the MySuper product is
appropriate to those beneficiaries; and
- whether any insurance fees charged in relation to the MySuper
product inappropriately erode the retirement income of those beneficiaries.
7.26 The Senate Economics Legislation Committee recommended that the bill be
7.27 Treasury also pointed to two further initiatives. In the first, the
government has tasked APRA with making it easier for MySuper members to opt out
of automatic life insurance and TPD policies. In the second, the Productivity
Commission is currently undertaking the third stage of its review of the
competitiveness and efficiency of the superannuation sector. The terms of
reference for this review explicitly require the Productivity Commission to
examine the appropriateness of current arrangements for insurance in
7.28 Since 2015, the Australian Tax Office (ATO) has provided an online
system called Supermatch2 which provides trustees with information to assist
with consolidating members accounts. Prior to 2015, an earlier version of
Supermatch was available. Trustees are able to submit single or batch requests,
and Supermatch2 will provide information on members accounts including:
- the name of the superannuation fund;
- the member account number;
- the member identifier and full name of member;
- the tax file number of the member;
- an insurance indicator (not for new member accounts);
- a defined benefit indicator (not for new member accounts);
- the activity status of the account;
- indicators if the ATO held superannuation; and
- account balances.
7.29 Evidence to the committee from a broad range of stakeholders strongly
supported the opt-out model for life insurance within group superannuation,
particularly as a means of addressing the problem of under-insurance.
7.30 Nevertheless, concerns were raised in relation to the opt-out model,
particularly for those with low super balances such as low-income earners,
women, and young people. The mechanism for opting out of life insurance held
within group superannuation does not appear to be straightforward.
7.31 The committee welcomes moves by the government to task the Australian
Prudential Regulation Authority (APRA) with making it easier for MySuper
members to opt out of automatic life insurance policies. The committee is
reassured by the Insurance in Superannuation Code of Practice which would
require trustees to make the process of cancelling, or opting out of, automatic
cover straightforward and transparent for members including via a fund's
website, over the phone or by email.
7.32 However, the committee is firmly of the view that trustees should move
swiftly on this matter and institute an online system that could be as simple
as an opt-out button on the fund's website. The committee is puzzled by how
long it has taken to institute what would, on its face, appear to be a
straightforward reform. The committee therefore considers that further delay in
simplifying the opt-out mechanism is unacceptable.
7.33 Beyond simple mechanics, however, evidence to the inquiry revealed that duplicate
life insurance held within group superannuation accounts is a substantial drain
on superannuation balances with significant adverse consequences for retirement
incomes, particularly for those with low super balances and/or not engaged with
their accounts. Consumer groups told the committee that up to $1.96 billion is
lost each year through duplicate life insurance accounts held in group
7.34 By contrast, it is estimated that superannuation balances at retirement would
rise by around $16 000 in total if duplicate insurance accounts were
removed. This would be a significant boost to retirement savings. Women,
low-income earners and young people would benefit in particular as they are
disproportionately adversely affected by insurance premiums eroding their
7.35 The committee views the current dearth of action by trustees and life
insurers to fix the problem of duplicate insurance within group superannuation
as completely unacceptable given that systems already exist which can be used
to remedy the matter.
7.36 The committee considers that the Supermatch2 system is likely to already
give superannuation trustees access to most of the information necessary to
assist members in resolving problems, including duplicate superannuation and
life insurance accounts and the associated duplication of fees and premiums.
7.37 Given that the Supermatch systems have been available to trustees for
some years, the committee is particularly concerned that trustees and life insurers
have been profiting from fees and premiums and have not used the already available
resources to assist members to resolve issues including consumers having:
- life insurance that they unaware of;
- duplicate accounts for which duplicate fees and premiums have
- accounts with small balances that may be eroded by premiums; and
- accounts with life insurance upon which, in all probability, the
member would be unable to make a successful claim.
7.38 Given both the inaction by trustees and life insurers, and the fact that
40 per cent of people have more than one super account and therefore
potentially a similar number of duplicate life insurance accounts, the
committee considers that urgent action is required to inform account holders of
the status of their accounts.
7.39 The committee supports the general principle that buyers should be aware
and should make reasonable efforts to inform themselves. However, the committee
considers that when fund members, by virtue of the current opt-out system, automatically
make superannuation contributions and related premium payments, it is
inexcusable for those trustees entrusted to act in the members' best interest
to collect duplicate fees and premiums when they have ready access to the relevant
information and would be in a position to inform their members.
7.40 The committee notes that the final version of the Insurance in
Superannuation Voluntary Code of Practice requires complying life insurers to
contact automatic insurance members with balances under $600, nine and 13
months after their last contributions.
7.41 The committee recommends that trustees that have access to information
on accounts that are duplicate, have low balance risks or lack contributions, should
be required to contact members annually to inform them, in summary form and in
plain English, of:
- the status of their accounts; and
- whether their insurance policy is still providing coverage.
7.42 The committee further recommends that, in addition to annual
notification, trustees should be required to contact members in a timely manner
when trigger points such as low balance risk are reached.
7.43 The committee observes that even if the government were to immediately
implement the above recommendation, it may take some years to resolve the
issues. In the meantime, fund members would continue to lose significant sums of
money, particularly women, young people and low-income earners, and trustees
and life insurers would continue to make improper gains.
7.44 The committee notes that taxpayers are able to use their myGov account
to check the status of their superannuation accounts, including:
- details of all superannuation accounts;
- finding lost superannuation held by superannuation funds;
- finding ATO-held superannuation—if the government, superannuation
funds or employers are unable to find an account to transfer the superannuation
- combining multiple superannuation accounts by transferring superannuation
into a preferred superannuation account; and
- checking for the existence of life insurance held through superannuation.
7.45 The committee is concerned by the evidence presented during this inquiry
that many people are either unaware that they hold life insurance accounts
through their superannuation, or unaware that they can check on such accounts
through the myGov system.
7.46 The committee therefore considers that it would be appropriate to inform
people of the information held by the Australian Tax Office on individuals'
superannuation and life insurance accounts with the aim of improving member
7.47 The committee recommends that superannuation funds should be required to
inform the Australian Tax Office of the type and status of the insurance that
is held for the benefit of the member for each of their superannuation
7.48 The committee recommends that, when it sends out individual annual tax
assessments, the Australian Tax Office also provide a statement of
superannuation and insurance, subject to system capacities and cost
effectiveness, including information on:
- the number of superannuation accounts held;
- the number of life insurance accounts held through
- the insured's right to seek information from the superannuation
trustee about the balance, and the continued coverage or otherwise of any
7.49 The committee notes that the ASIC's MoneySmart Website includes useful information on a range of issues that consumer should be aware
of. However, duplicate insurance accounts held within group superannuation does
not feature on ASIC's website.
7.50 Given the scale of the problem and the lack of action from
superannuation trustees and life insurers supplying the group superannuation
market, the committee considers that there is a need for a public information
campaign to raise awareness of these matters.
7.51 To this end, the committee considers that it would be appropriate for
the industry to fund a prominent media advertising campaign to alert consumers
to the prevalence of duplicate life insurance held within superannuation
accounts, the negative impacts that this can have on superannuation account
balances, and the mechanisms for removing duplicate insurance policies.
7.52 The committee recommends that the life insurance industry fund a
prominent media advertising campaign, particularly aimed at those most
vulnerable to duplicate accounts and fee erosion, to alert consumers to:
- the prevalence of duplicate life insurance accounts held within
- the negative impacts that duplicate life insurance accounts can
have on superannuation account balances;
- the mechanisms for removing duplicate insurance policies within
group superannuation; and
- the importance of seeking specific advice before making changes,
if you have any pre-existing conditions.
7.53 The committee recommends that the government
appoint the appropriate existing body to undertake an immediate review of all superannuation
trustees to determine their compliance with existing obligations under the Superannuation
(Industry) Supervision Act 1993, including section 52(7)(c) covenants, 'to
only offer or acquire insurance of a
particular kind, or at a particular level, if the cost of the insurance does
not inappropriately erode the retirement income of beneficiaries'.
7.54 The committee recommends that, the Australian Government consider
legislating to protect the retirement savings of members with low account
balances and members who do not receive any value from default insurance.
7.55 The committee recommends that the Australian Government consider
legislating to require life insurers and superannuation funds to provide
regular updates to policyholders of the level, type, extent and cost of life
insurance cover that they have using a standard form disclosure format,
enabling them to compare with other funds or, in the case of superannuation,
make them aware that they have access to life insurance.
7.56 The committee notes that this inquiry has focused on group insurance
within the superannuation environment. However, it is important to recognise
that group insurance also exists outside superannuation and should be
investigated at some future time.