Industry Funds: What’s the Risk?

Agenda Topic Considerations for risk in super Impact of Best Interest Duty Comparing Retail versus Industry fund risk TPD Income Protection Key considerations

Pros and cons of risk in Super Risk in super No impact to cash flow Alignment of SIS definitions Trustee to act in best interests Automatic cover XImpact on retirement savings XThird party claims assessment XMust comply with SIS XNo discretion for trustee

“Many funds have strived to provide the most attractive insurance benefits possible, offering the highest levels of cover, incorporating broader definitions of disablement and requiring minimal underwriting to ensure as many members can obtain insurance as possible.” Wendy Tse, Super Ratings General Manager Cost of cover – Industry Funds

Maintain or replace? Best Interest Duty – what is the impact? Must review existing insurance even if not on APL Demonstrate the logic of decision

Pre-existing condition clauses No guarantee of upgrade Limitations of cover Offset provisions Ambiguity/lack of clarity in wordings When cover ends Binding nominations Industry funds – the concerns

>May apply Based upon conditions prior to commencement of cover For a fixed period once cover has started Pre-existing condition clauses

Q Super The benefit won’t be paid for the first 5 years of being covered if the cause of your death, TPD, terminal illness or IP is related to a medical condition that existed before your cover commenced.

Pre-existing condition clauses Host Plus Personal plan has 2 year pre-existing clause (a claim for any condition where symptoms or treatment occurred in the 2 years prior to cover)

Pre-existing condition clauses Care Super This cover is subject to a pre-existing condition exclusion if not underwritten Life events has pre-existing clause for conditions 5 years prior

Pre-existing condition clauses Media Super Corporate Automatic cover – all cover is subject to the Pre-existing Conditions clause (Income Protection)

“This document does not contain full details of the contract between REST and its insurer and only offers a general guide to the insurance offered by REST…. If there is any conflict between this document and the contract with AIA, the insurance contract will prevail. Insurance costs, benefit levels and conditions of cover are not guaranteed and may be varied from time to time without notice. When REST confirms your insurance please check the amount and type of insurance cover we have recorded for you. If you believe it is less than expected you must contact us immediately or the cover recorded will be the cover assessed should you make a claim.” REST Guarantees??

Guarantee of upgrade There are none! Australian Super Changes – November 2014 At the end of three months in a row, your injury or illness means that you’re incapable of ever working in any job that you are suited to based on your previous education, training or experience, or any job that you may reasonably become suited to with further education, training or experience. This will be decided by considering things such as: - what re-skilling, training or voluntary work you have done already, - any retraining or reskilling you reasonably could be expected to do, and - any rehabilitation you have done already or any rehabilitation you reasonably could be expected to do

Guarantee of upgrade The Trustee reserves the right to change the insurer and vary the benefits, costs, procedures or terms and conditions from time to time. Rest Super Guide

Limitations of cover – General “If you have 2 or more accounts you will not be entitled to insurance from more than one account. In this instance the account with the highest benefit will be used when determining any claim. Restrictions or exclusions may be determined or assessed when a claim is made” CARE Super

Total and Permanent Disability cover “We may refuse to pay or reduce benefits if you failed to give notice of your disability at the start of your disability, to the extent that the Insurer’s assessment or management of your claim is prejudiced. Media super TPD The waiting period for a TPD claim is three months. This refers to the amount of time you have to wait after being certified by a registered medical practitioner as being totally and permanently disabled and ceasing work due to that condition. GESB TPD… you are so disabled at the start of those 3 months and continuously since that time that you are unlikely to ever engage in any reasonably suitable occupation (in determining whether an occupation is reasonably suitable for you the insurer considers the skills you have acquired through education, training and experience).” REST Limitations of Cover

Limitations of cover – Income Protection Provider Income Protection Benefit Period HESTA 2 years only (if not TPD) Media Super Maximum 2 year benefit period (total and partial) Aust Super Maximum 2 year benefit period TWU Super, REI Super Maximum 2 year benefit period

Limitations of cover – IP definition changes Total disability“… after expiry of the two years, and for the balance of the benefit period, is unable to perform any of the Important Duties of his or her own occupation and any other occupation for which the insured member is reasonably able to perform by reason of education, training or experience” When cover ceases – “… the date a TPD benefit becomes payable…” REST Super insurance guide “After the expiry of two years after the waiting period: means HESTA’s insurer is of the opinion, after considering medical evidence, that the insured member is disabled to such an extent that he or she is unlikely ever to be capable of engaging in his or her usual occupation”. HESTA

Limitations to cover – Exclusions “… nor will the insurer pay an insurance benefit if you have been employed as a result of your employer’s practice of preferential employment of employees suffering a condition likely to cause their death or TPD within three years of cover commencing.” TWU Super

“Continued cover applies if you leave the employment of a Rest employer for 71 days and will then continue as long as account balance is greater than $3000. If less than $3000 only death cover will apply and will cease without notice once funds are insufficient to pay premiums” REST Super Guide “When cover ceases… the date you cease to be a member of Rest Corporate” REST Corporate “Cover ceases when you are no longer a member of Hesta” Hesta When cover ends

Offsets Before you can be paid an income protection benefit, you need to use up all of your sick leave and satisfy a waiting period, which is 14 continuous days of sick leave without pay. Q SUPER Therefore, if you are claiming an IP benefit and are receiving, or entitled to receive income benefits from other sources, such as sick leave, workers’ compensation, motor accident compensation, Centrelink benefits or benefits from another insurance policy, the amount payable from other sources may be offset against the income component of your IP benefit REST “the amount of income the Insurer believes you could reasonably be expected to earn in your occupation whilst disabled or partially disabled MTAA Your monthly IP benefit will be reduced by the amount of income you receive from any one of the following sources…. any benefits you may receive or are entitled to receive ‘any income, that in the opinion of the insurer, you could reasonably be expected to earn in your occupation while disabled sick leave payments benefits payable under other income protection insurance policies AUST SUPER

Limitations Income Protection ‘your benefit will stop if you:  Are no longer on approved sick leave without pay  Fail to provide medical information when requested by Qsuper  Fail to attend an assessment as arranged by Qsuper

Repayment of benefits “The insurer may require repayment, to the extent permitted by law, of all, or any part of a benefit paid where: the insurer was entitled to reduce the benefit paid, but did not do so for any reason; or the benefit, or part of the benefit, was not payable under the insurance policy.” First Super My mistake or yours?

“ GESB Super and West State Super members cannot nominate a death benefit beneficiary so it is important that you have an up-to-date will.” “Once notified of the death of a scheme member, a letter is issued to the member's spouse, de facto partner or legal representative advising of the documents that are required to assess a spouse or de facto partner's eligibility.” “Where a spouse, de factor partner or child pension is not payable, the legal representative of the deceased member may apply for a lump-sum benefit to be paid from the scheme.” NSW State Super Scheme Nomination of beneficiaries – binding or not at all?

Would the client know this? “There are a number of circumstances set out in this guide where you may not be eligible for a particular level or type of insurance cover or your cover may cease. You need to be aware that you will not have insurance cover for any period when such circumstances apply, even if you have had insurance charges deducted from your super account. However, any overpaid death, terminal illness or, if applicable, TPD insurance premiums will be re-credited to your account. That is why it is very important that you let us know if you are, or become, ineligible for a particular level or type of insurance cover.” TWU Super

Would the client know this? “If you cease to be eligible for cover and we do not know about this, you may still receive a statement showing a level of cover you are not eligible for and therefore you would be unable to claim in the event of death, terminal illness or disablement. It is important to remain aware of the circumstances under which cover will cease.” TWU Super

“Many funds have strived to provide the most attractive insurance benefits possible, offering the highest levels of cover, incorporating broader definitions of disablement and requiring minimal underwriting to ensure as many members can obtain insurance as possible.” Wendy Tse, Super Ratings General Manager Cost of cover – Industry Funds

“Whilst this is a valiant attempt to act in members’ best interests, it has potentially worsened claims experience and pay-out ratios, adding further fuel to an already challenging environment. Funds must reconsider their overall insurance design, including levels of cover, disablement definitions, and automatic acceptance limits to ensure these are appropriate for their membership rates” Wendy Tse Super ratings

Retail funds Guarantee of upgrade Non- cancellable Flexibility in claims assessment Retail Funds

Checklist Obtain copies of PDS and policy document How did the client join the fund? Review for exclusions Compare and recommend Explain the limitations and consequences

Thank you for your time!

Disclaimer The information in this presentation has been developed without taking into account a potential policy owner's objectives, financial situation or needs. Before making a decision based on the information in this presentation, a potential policy owner should consider the appropriateness of the information, having regard to their objectives, financial situation and needs. Certain of the statements contained herein are statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties. A potential policy owner should consider the PDS available at onepath.com.au. Actual results, performance or events may differ materially from those in such statements due to, among other things, (i) general economic conditions, in particular economic conditions in ANZ Wealth core markets, (ii) performance of financial markets, including emerging markets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) interest rate levels, (vii) currency exchange rates (viii) general competitive factors, (ix) changes in laws and regulations, (x) changes in the policies of governments and/or regulatory authorities. ANZ Wealth assumes no obligation to update any forward-looking information contained in this document. OneCare is issued by ANZ Wealth ABN AFSL No part of this presentation may be reproduced or distributed without prior written permission of ANZ Wealth. 32