Are insurance companies pulling the wool over your eyes?

19 Apr 2016 13:32 PM

My family was recently invited to celebrate the Chinese New Year with one of Sydney’s most successful restaurateurs. That his level of success was only matched by his modesty, would impress anyone, but what truly inspired me was his charitable work.

He has set up a foundation to perform cataract operations in the remote villages of Cambodia. In a developed country like Australia, the growth of a cataract is dealt with swiftly, having little impact on the patient. In Cambodia, left untreated, the skin grows over the eye leaving the patient in many cases totally blind. Through his foundations, the lives of multiple families are drastically improved.

In Australia, we have a different problem. How often is the wool pulled over our eyes through the use of technical terms, leaving us too – blind? In this case I am referring to ‘Group Insurance’. Group insurance is insurance that is passively taken out through your super fund. So if you are employed or have been employed by a company – you are the patient.

Super funds have millions of members and billions of assets so they are able to negotiate phenomenal discounts on insurance policies for their members. Furthermore, these policies can be taken out with little or no underwriting. Herein lies the risk.

I am sure that you have heard or seen the multiple adds by compensation lawyers – “We can help you with your claim”. The success of these claims – whether rightly or wrongly in each particular case - has led to the drastic fall in profitability of Group Insurers.

‘Net profit after tax for the quarter was $27 million.  Individual risk products contributed $176 million profit but group risk products lost significantly, with losses of $148 million for the quarter.’ Chris Kenedy, 21st August 2013

To improve profitability, Group Insurers had two options –

  • Increase premiums
  • Change the definitions in the policy to make it more difficult to make a claim

In practice, they have done both.

A client of mine, previously with Australian Super, was recently notified of a 108% increase in his income protection premiums. He is not alone, with premium increases happening broadly across the Group Insurance industry. SunSuper members have recently experienced an increase of 100% and CBus members – a massive 200% increase.

The definitions on Australian Super’s TPD policies have been tightened to such an extent as to decrease the probability of anyone ever making a claim to a level of almost zero. Other group insurers have barely been more upstanding.

Now here is the key point – You are not actually a party to the insurance contract. The contact is between your employer and the insurer. Therefore, they don’t have to consult you on the change – they merely have to notify you of it (Yes, you read that correctly).

‘Run solely for the benefit of its members’ suddenly has a new meaning.

So yes you are shocked and horrified, but I am sure that you don’t read my articles just for the fun of it. If you have insurance policies that you have taken up through your employer super fund, you may find it incredibly difficult to receive a payout when you most need it and you may be subject to massive price increases.  Please get in touch to have your policies reviewed.

I am also sure that you wouldn’t want your friends and family to be sitting with wool over their eyes (it is not a good look) – so please forward this article to them too.

Get in touch with Marisa at marisa@onelifewm.com.au or on 0416 538 227


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