MySuper Committee Rejects Calls for Tailored Life Insurance
The Australian government’s Joint Committee on Corporations and Taxation has reported that it does not support a system, as part of the MySuper initiative that allows trustees to tailor life insurance products to the different needs of individual members.
This recommendation comes after a number of industry participants had voiced their support for tailored offerings. Those industry submissions had been made as part of the consultative process that was conducted from February to May 2011.
Mercer, for example, argued for a tailored approach, asserting that tailored products were more likely to be optimal for diverse employee groups. The committee acknowledged this concern, stating that the alternative might produce "an 'average' strategy that is sub-optimal for all members."
The committee recognised the potential value of products that could be tailored to different needs, but it found that those benefits were outweighed by a number of other factors. In particular, the committee focused on the ability of members to evaluate different products on the same terms. The report states that "by having a common set of features, such as life insurance, it will make it easier for members and employers to compare products."
The committee sees this approach as an appropriate response to the policy concerns, including simplicity and ease of product comparison that underlie the MySuper legislation. "These features will encourage competition among MySuper product providers to lower fees."
In its own explanation of the reforms, the Treasury has emphasized that its goal is to introduce a product that will "improve the simplicity, transparency and comparability of default superannuation products."
As a result, the reforms focus on lowering costs, simplifying transactions and improving governance of trustees. In arguing for the ability to tailor products, industry groups have expressed concern that the committee's approach is inconsistent with legislation proposed as part of the Future of Financial Advice (FOFA) proposal, which requires advisers to act according to the best interests of members.
The committee did indicate that it was troubled that the proposed bill lacked details pertaining to insurance requirements, especially given that the legislation is supposed to go into effect in October 2013, but those misgivings were not enough to overrule the committee's support. In February, Mercer expressed concern that the timetable for reform is impractical and that it is likely to "create significant disruption for the industry."