Group life insurance must balance affordability with its ability to pay claims, according to former Association of Superannuation Funds Australia acting CEO Jim Minto.

“We have lost some community trust in life insurance generally and we must address the concerns,” he told the association’s conference on the Gold Coast last week.

“The efficiency of delivery of life insurance, in terms of the percentage of premiums that are paid back by claims, has never been higher in our history.

“The super system’s delivery of life insurance benefits to members in Australia is the most efficient model in the world when we assess claims relative to premiums paid.”

But Mr Minto admits group life has had its problems in recent months.

“To make covers more sustainable, benefits were redesigned, sensibly in most cases, cover levels were reduced and lump sum payments turned to more of an income stream.

“Cover levels have been adjusted in many cases to make sure overinsurance is minimised.

“It is important we get the balance of affordability versus restrictive terms right and even more important that we communicate effectively with members so they understand the necessary trade-off.”

Mr Minto says industry associations connected with super are developing a code of practice for group life.

“The industry will also systematically address various concerns and issues that have arisen in the past few years around practice and design.

“This is all about bringing better design and practice, as well as more consistency and clarity for members [and] enhancing consumer protections.”

At the same conference Financial Services Minister Kelly O’Dwyer called on the group life industry to examine how funds have implemented policy changes.

“I encourage this group to take these issues seriously and to consider how the industry can both take proactive steps to improve the current system and make practical recommendations to government on areas for regulatory reform,” she said.

“It is critical that this important part of the system is consistent with the overall objective of super and is fit for the future.”

She says the Government is working on a framework for retirement products such as annuities, including removing barriers to innovation in retirement income streams.

“In the coming months we will consult on how new products will be treated under the age pension means test. We will also be releasing a discussion paper this year that will explore the key policy issues for developing a framework for these products.”