A surprisingly high proportion of inactive super fund members are opting to keep their insurance, as the Protecting Your Super reforms approach.
The chief operating officer of NGS Super, Angie Mastrippolito, says the fund is looking at a 20 per cent opt-in rate – a level that creates a great deal of uncertainty.
From 1 July super funds will be prohibited from charging insurance premiums for inactive accounts. Some of the big funds have as many of 20 per cent inactive members and at this stage there is no knowing what proportion will opt back in to insurance.
Mastrippolito was a speaker at last week’s Actuaries Summit. She says: “We don’t know what opt-in selection will do. We don’t yet know what the demographics of the opt-in cohort will be and how that will affect pricing.
“Do you price now or later? It is a vacuum.”
The industry is worried about a potential backlash if premiums go up by as much as 20 per cent, as has been suggested. High premium increases could encourage active members to opt out of insurance cover.
These uncertainties are being made worse by the tight timeframe for change. The legislation was passed in February and funds have had to contact all inactive members before the 1 July start date.”
Phil Patterson, a senior consultant at Willis Towers Watson, says: “My clients say they can’t move quickly on this. They want to act in the best interests of their members and they want a sustainable pricing model.
“The timing on this was ridiculous. The February legislation was very late and a lot of the pricing is just now coming out,” says Patterson, who was also a speaker at the Actuaries Summit.
“The impacts vary by fund and that makes it a challenge for them to work out what to do.”
Darren Wickham, general manager of group product and ricing at TAL, says the less healthy inactive members may be the ones that choose to opt back in. The insurer will get more claims with less premium.
“As a rule, the disability claims experience for inactive members is better. This may reflect a lack of awareness,” he says.
This “anti-selection” could be an ongoing problem, as members become inactive in future.
Wickham says the opt-in rate for inactive members could be 10 to 15 per cent across the board. “That number is high,” he says.
Mastrippolito says another concern is the prospect of litigation from people who say they did not get a letter from their fund and did not know they were no longer covered.