A recent superannuation round-table discussed at length the role of prevention and rehabilitation in insurance.
The focus was on the role insurers could play in identifying policyholders who were, for example, at risk of mental illness or suicide and put in place preventative measures. Similarly, early intervention and proactive rehabilitation were said to be important claims management tools.
Such measures would have the intention of improving policyholder well-being and reducing the number and size of claims. All sound policy settings.
But what about insurance within superannuation? What is the role of superannuation funds and group insurers in preventing injuries and illnesses amongst their members and trying to rehabilitate those who cannot work and whose retirement incomes may be compromised?
The answer so far is not much.
Nearly 15 million Australians have superannuation; almost all Australians of working age. The vast majority have death, Total and Permanent Disability (TPD) and/or income protection insurance in some form, accounting for 70% of all life insurance held by Australians.
Accordingly, superannuation funds and their life insurance partners have a very large captive audience and are thereby well placed to have some influence on member behaviour on issues such as suicide prevention and tackling obesity. In managing disability claims, they could have a substantial impact on members health outcomes and incapacity for work by offering rehabilitation and retraining.
However, currently superannuation funds and insurers are hamstrung in their ability to offer support to members.
The Health Insurance Act 1973 prohibits life insurers (and general insurers) from paying for medical treatment that may otherwise be payable under Medicare or by a private health provider. This means that life and general insurers cannot pay for most medical services to treat superannuation fund members’ injuries/illnesses or to fund many medical-related rehabilitation services.
Insurers can and some do offer retraining services as part of income protection benefits, with a view to retraining claimants into the paid workforce and thereby reducing or ceasing ongoing income protection payments.
The same applies to TPD benefits that include retraining as part of the definition.
However, under the Superannuation Industry (Supervision) Regulations 1994 (SIS), trustees offering TPD benefits under MySuper-compliant funds must offer TPD benefits consistent with the definition of permanent incapacity which does not currently include a retraining clause in the definition.
This definition of TPD has been interpreted in Australian courts over the years, some of which have grappled with what level of retraining can be taken into account in assessing a claimant’s eligibility for the standard TPD benefit.
The courts have generally settled upon consideration of occupations that would require de minimus (minimal) retraining, as opposed to occupations that the claimant does not have the skills to perform and would require substantial retraining (see Hannover Re and United Super v Dargan, NSW Court of Appeal).
This approach has caused consternation in the industry with some pointing to examples of claimants being paid TPD benefits and then retraining and returning to work. It is said that this is not consistent with the design of TPD benefits within superannuation, namely to top up the retirement incomes of those whose working lives are cut short because of disability.
Some commentators have pointed to this as contributing to the rise in claims and the adverse claims experience of group insurers in the last 5 years.
Rising premiums leading to account erosion has come in for media criticism in the last few years and has attracted the attention of government and regulators.
Insurance within superannuation has been an integral part of the retirement incomes system in Australia providing cost-effective insurance against Australians having their working lives cut short because of injury or illness and thereby not having enough money to live off in retirement.
However, that insurance comes at a premium cost and it is essential to ensure that the benefits remain fit for purpose and value for money.
Prevention and rehabilitation/retraining fit well within the policy setting for insurance benefits within superannuation. They can reduce the incidence and period of incapacity which will in turn enhance the ability of members to work and continue to accrue superannuation during their working lives, whilst providing a safety net for those whose working lives are genuinely cut short because of injury or illness.
Accordingly, it is submitted that legislative amendments are appropriate to enable super funds and insurers to offer limited rehabilitation and retraining and that the definition of TPD and permanent incapacity in the SIS legislation should be amended to include a reasonable retraining clause.