Need to know
- Life insurance lobbyists have been circulating a 187 page document, dubbed the ‘Book of Death’
- The aim is to emotionally blackmail crossbench senators to water down sensible reforms to insurance in superannuation
Using a deliberately harrowing and emotional case study is part of any lobbyist's persuasive arsenal, but no sector is quite as shameless as the life insurance industry.
Reform is long overdue. But life insurance lobbyists are warning that the changes will leave the senators 'with blood on their hands'.
ASIC chair James Shipton has succinctly summarised the life insurance sector:
"People are being sold products they don't want, can't afford, or [that] don't perform as they expected."
That is also how the mafia does business.
Superannuation funds are required to provide life insurance with almost every member account. This obligation is poorly understood. One in four people do not even know that they have coverage.
This system has allowed insurers to profit from a variety of perverse outcomes.
Industry has resisted reform for years
People without dependants or liabilities are paying for life insurance that they likely don't need. Sneaky exemptions to prevent payouts are buried in the fine print. For low-income earners, premiums can quickly erode their retirement balances.
Simple reforms would improve product offerings, and help Australians to have some agency over what they are paying for – but the life insurance sector has been using shock tactics to frighten politicians and block reform for many years.
There was a shift in the political landscape in early 2016, when whistleblower Dr Benjamin Koh revealed the appalling ways that CommInsure was avoiding paying out on claims.
The CommInsure scandal led to a cascade of investigations.
The corporate regulator, ASIC, has conducted multiple inquiries and surveys into life insurance practices (Reports 498, 587, 588); a Parliamentary Joint Committee inquiry investigated the sector from 2016 to 2018; and the Productivity Commission recommended an independent inquiry into insurance in superannuation.
But the insurance lobby has been taking the government for a ride on the merry-go-round, establishing several voluntary industry working groups, leading to toothless and unenforceable codes of conduct.
"I gave them a chance to fix it and they didn't"
Frustrated by the refusal of big insurers to clean up their product offerings, last year former Minister for Financial Services Kelly O'Dwyer stood up to them, introducing legislation to protect Australians, saying:
"I gave them a chance to fix it and they didn't. I wasn't going to hang around and wait for five years while they talked among themselves."
O'Dwyer's original bill would have made insurance in superannuation 'opt in' for people who likely don't need the cover, forcing both insurers and superannuation funds to better explain the value of their product offerings when people open accounts.
But the lobbyists fought back, using their apocalyptic horror stories to protect their profits.
A new version of this legislation is currently before the parliament, and the life insurance sector is back at it again.
Treasury estimates that the overhaul would cost insurers up to $3 billion in reduced premium revenues, and save around five million Australians several hundred dollars each year – all of which will stay in the superannuation system, patiently growing over time, giving people more money in retirement.
Insurers are making fat profits from compulsory superannuation savings, particularly from the young and people in intermittent work.
The Productivity Commission looked closely at the inappropriate cross subsidisation of insurance in superannuation, and found multiple examples of 'egregiously-inferior' outcomes.
They concluded that compulsory insurance in superannuation is providing poor value, especially for young workers with no dependants.
The harrowing cases in the 'Book of Death' are very real examples of accidents leaving people incapacitated or with grieving relatives. But insurers are deliberately using these shocking cases to scare politicians from enacting sensible and rational public policy solutions.
We all want a system which supports people and their families who need assistance due to death or disability, but remain disappointed by the reluctance of many insurers and super funds to design and price products for the needs of their members.
Their scaremongering is predictable, and unfortunately, passé. We have, quite literally, seen it all before. In the wake of the royal commission, it is brazen.
Treasurer Frydenberg and his ministers should be applauded for their efforts to end the insurance gravy train by standing up to 'the life insurance mafia'.
The cold hard truth is that the life insurance sector has been dragged, bitterly and petulantly, to this point, and change is long overdue.
Disclaimer: This article originally appeared in The Australian.
This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.