An Insurance Welcome Pack should be given to superannuation fund members to give them greater awareness, better information and ownership of the insurance cover that they automatically receive through their superannuation fund, proposes the Insurance in Superannuation Working Group (ISWG) in its third discussion paper released last week.
The Insurance Welcome Pack will promote greater engagement, active learning and greater understanding of the type of cover, inclusions and exclusions, and the value of cover provided by funds.
The ISWG says that currently when members join a new employer, in most cases, they are provided with the opportunity to elect their preferred superannuation fund for Superannuation Guarantee contribution purposes. However, due to apathy, lack of knowledge or a belief that an employer chosen fund will meet their needs, members will often join the default fund provided by their employer.
When starting a new job, a member’s key focus is generally not on their insurance cover and due to bundled superannuation information, insurance details are often ignored or overlooked.
While superannuation funds currently provide a large amount of superannuation information to their members upon entry into the fund, many consumers do not read product disclosure statements largely because they are lengthy or too complicated to understand.
The implication of this research is that members risk potentially paying for multiple insurances; insurance they may not need or that may not be specifically appropriate for their needs.
The ISWG says that in order to address these issues, it is proposed that minimum standards be introduced to ensure that consistent information about insurance, including the impact of insurance cost on their account balance, is delivered to members upon joining a superannuation fund.
The discussion paper, titled “Member communication and engagement”, outlines options to improve member engagement and understanding of their insurance arrangements within superannuation.
The ISWG also says that consideration is being given to using a Key Facts Sheet to convey the essence of the life insurance arrangements and help inform members’ choices and decisions. Other suggestions include using understandable language consistently throughout the industry, presenting financial product information in shorter disclosure documents using plain language and graphics, and establishing a standalone member education website to help members select products that suit their needs.
The ISWG released its first discussion paper in March which examines how to address the issue of members paying for cover they don’t need through having multiple super accounts. More discussion papers are set to be released later, with the last paper scheduled for release in July. Based on feedback on the papers, an enforceable Code of Practice and Good Practice Guidance for Trustees is expected to be published by the ISWG later this year.
The ISWG is comprised of Australia’s superannuation bodies, the Australian Institute of Superannuation Trustees, the Association of Superannuation Funds of Australia, the Financial Services Council, Industry Funds Forum and Industry Super Australia, who share the common belief that group insurance in superannuation is fundamentally the right policy setting for millions of Australians. This group also includes representative life insurers, superannuation funds and consumer advocates.