INSURANCE
How PMIF and PYS contributed to higher group premiums BY MIKE TAYLOR
Many of the objectives of the Government’s changes to insurance in superannuation may have been laudable but one of the outcomes has been higher premiums and higher costs to members.
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In the approximately two years since the Government introduced its Protecting Your Super (PYS) legislation and its allied Putting Members Interests First (PMIF) the number of people covered by insurance inside superannuation has declined while premiums have risen. Given that one of the key objectives of PYS and PMIF was to reduce account balance erosion by effectively making insurance inside superannuation opt-in for younger and low income members the outcome, at this stage, appears to have fallen significant short of what the Government had hoped for. As a reminder, the PMIF legislation provided for the cancellation of insurance cover for members with balances below $6,000 (where they didn’t request to keep the cover) from 1 April, 2020, and only start insurance cover for members where they have reached a balance of $6,000 and are age 25 or older.
So, what has the bottom line been? According to data compiled by specialist life insurance research house, Dexx&r, total in-force premiums for group life are down 3.2%. They stood at $6.226 billion at December 2018 and at December 2020 stood at just $6.013 billion. What is more, the data show that premium charged to members for default cover death and total and permanent disability (TPD) have increased by 15% since January 2018 with Dexx&r’s Mark Kachor making the point that if premiums charged to members had not been increased by 15% over the past two years, the decline of in-force premiums would have been around 18%. This is telling because it remains generally acknowledged that insurance inside superannuation remains the most common form of life insurance cover carried by Australians and the phenomenon of the PMIF legislation
coming at a significant cost to superannuation fund members remaining in the insurance pool was predicted well before 2019. But the Government’s legislative efforts have not been the only driver for increased premiums in the superannuation arena, with the insurers themselves having broadly sought to reshape what represented chronically unprofitable disability insurance offerings. This much has been recognised by the Australian Prudential Regulation Authority (APRA) which has expressed long-term concerns about the profitability of disability insurance and as recently as March saw fit to write to superannuation fund licensees and the chief executives of the major life insurers warning about the re-emergence of bad practices. What APRA said it was worried about was premium volatility and the re-emergence of tendering practices
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