Core and tiered cover, the availability of core cover and eligible benefit categories will all be under the spotlight, said Tria Investment Partners’ managing partner, Andrew Baker, in the latest Trialogue column.
“With group life, what was originally a simple, core insurance product for default members has ended up competing with fully-featured retail products, but without the typical inbuilt protections of retail,” said Mr Baker.
As a result, there has been an “explosion of claims, largely unexpected by funds in terms of both size and scope”, he said.
In an earlier Trialogue column, NMG strategy consulting partner Ashwin Field said the industry has shifted from “offering a minimum level of default cover to benefit structures and amounts that would internationally only be available with full medical underwriting”.
“On our numbers, the stand-alone group segment will generate returns on capital of -10 per cent in 2013; from 2010 to 2014, the cumulative figure is also likely to be negative,” he said.
According to Mr Field, gross returns before reinsurance are even worse, with reinsurers reporting losses of more than $500 million on group business.
“So prices will keep increasing, and potentially by more than we have seen in 2013,” Mr Field said.
Both Mr Field and Mr Baker believe price increases alone will not restore stability and that 50 per cent premium increases could lead higher balance members away from collective funds and toward SMSFs.
“Clearly this is a problem for a value proposition based on low cost, even if it’s probably the case that higher group prices are still lower for most members than retail prices,” said Mr Baker.
“To defend the proposition, ultimately we think the insurance product is going to have to change,” he said.
