Fundamentals – Insurance Covenant

• Insurance strategy (formulate, review & give effect to) addressing:– Kind of insurance – Levels of cover– Basis for decision to offer the kind at that level having regard to

demographic composition

Fundamentals – Insurance Covenant

• Cost– Consider; and– Only offer insurance of a kind and level if the cost ‘does not

inappropriately erode the retirement income of beneficiaries.“This recognises the importance of trustees balancing the needs of members with respect to insurance cover offered and retirement incomes” (EM)

Fundamental – Insurance Covenant

(. . .Cost) “. . . the duty requires the trustee to consider the trade off ‑between the insurance cover provided and the retirement incomes of members. Therefore, it does not apply to the circumstances of individual members. ” (EM)

Insurance Strategy – options

• MySuper insurance requirement:– Death & Permanent Incapacity (s68AA(1))

• Subject to conditions the trustee determines are reasonable (3)• Consistent with a condition of release

– Members may opt-out of either or both (5)• Subject to cost or unavailability

• Sustainability of current benefit design?

Insurance Strategy

Adviser experience

• Claims payments for policy types not payable within super – IP ancillary benefits and trauma:– 49% of number of our claims; and – 67% of the total value of our claims.

Insurance Strategy – Benefit

• What can you do for a member with an income of $180,000 and a need for $900K of life cover?

This?Insurance type

Life TPD Trauma Inc Protect In Super?

Premium Type

Life/TPD $900K $900K     Yes Level / Age based

Income Protection

      $11,250/mth No Stepped

Totals $900K $900K $0 $11,250/mth    

How about this?Insurance type Life TPD Trauma Inc Protect In

Super?Premium Type

Life/TPD $900K  $900K

    Yes Level

TPD (Own Occ) - Linked

      No Level

Trauma     $200K   No LevelTPD    

$750K    Yes Stepped

TPD (Own Occ) - Linked

      No Stepped

Trauma     $550K   No SteppedIncome Protection

      $11,250/mth No Stepped

Totals $900K $1.65M $750K $11,250/mth    

Insurance advice

• Disclosure• Calculators• General advice• Personal advice

– On what?

Too compliance focussed?

• Let regulation drive innovation:– What is the basis for your decision on what kind and level of benefits

you provide?– Why does your cover not inappropriately erode retirement savings?– How are you assisting your members individually?