One of the country’s largest life insurers believes that the wave of premium increases for death and disability cover offered by super funds may soon be over.

Premiums for disability insurance have soared in the past two years in response to a blowout in claims across the superannuation industry.

In the case of some funds, such as Cbus, the cost to members of renewing insurance policies has almost doubled.

But Jim Minto, the managing director of leading insurer TAL, said the recent bout of big premium increases might be at an end as claims from super members begins to slow.

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“It’s still too early to make a definitive call that we won’t have any more steep premium increases, but the signs are positive,” he told The New Daily.

“The prospect of extreme increases like those of the last two years is not there for many funds – there’s a sense that prices are stabilising.

“Claims levels are flattening out for the industry as a whole, although not for all funds.”

TAL underwrites disability and income protection policies offered by several big super funds, including Australian Super.

Richard Weatherhead, Australian Super’s head of insurance products, said premiums for disability and income protection had risen by more than 80 per cent in the past two years following an extended period of reductions in the previous decade.

“The recent rises have brought the cost of insurance back to the levels of 2010,” he said.

Insurance terms tightened

TAL and Australian Super recently renegotiated the terms and conditions for insurance policies marketed by the fund with the aim of limiting further premium increases.

The changes, which take effect in November, will result in a tightening of eligibility criteria and benefits under death and disability policies marketed by the fund.

The key changes are:

• A rewording of standard policies requiring members to show they are “incapable” of working in a job they are suited for. Previously, members only had to demonstrate they were “unlikely” to be able to work
• In assessing claims, TAL and the fund will take into account whether retraining or rehabilitation may improve a disabled member’s chances of future employment.

Mr Weatherhead said the changes were not aiming to crimp the entitlements of people suffering debilitating injuries and conditions.

“The changes at Australian Super are in no way intended to deny members who are genuinely disabled from getting benefits,” he said.

“The redesign is about aligning benefits with members’ needs.”

Causes of the price hikes

Almost everyone in the industry agrees that the rise in claims and payouts has been the main driver of spiralling premiums.

Most also believe that the increased presence of litigation lawyers in Australia has contributed to the claims blowout.

Mr Weatherhead said the superannuation industry was partly to blame for lawyers targeting the sector.

“We, as an industry, designed insurance products that contained definitions that were just too vague,” he said.

“When definitions are vague, people are quite entitled to go to lawyers and get advice.”

Industry research shows that around 50 per cent of all claims lodged by superannuation members in 2013 were done through a legal firm.

Too many claims have been accepted. Photo: Shutterstock

One of Australia’s most experienced insurance litigation lawyers, John Berrill of Maurice Blackburn, said he was “amazed” to see some undeserving claims accepted by insurers in the last decade.

“In some cases I was surprised to see insurers pay out on claims without a fight,” he said.

“Too many claims have been accepted because the rigor in the claims process was not there.”

Mr Berrill said more lawyers were focusing on the superannuation sector following the tightening of eligibility rules for workers compensation in NSW and other states.

A report published by research house RiceWarner earlier this year indicated that lawyers’ fees were accounting for up to 40 per cent of the benefits paid to members who made successful claims.

Mr Berrill defended the profession against charges that it was milking the super system.

“I’ve heard stories of some lawyers overcharging clients – if that’s the case those lawyers should be reported to legal associations and hammered for what they’re doing,” he said.

“As a profession, we actively and unashamedly promote to people what their entitlements are,” he said.

“We will continue to do so and make no apology for that.”

Lump sums survive – for now

Mr Minto said that insurance bought within super funds still offers great value, but that the days of massive lump sum payouts may be numbered.

Most super funds still allow successful claimants to take lump sum payments, but insurers are agitating for payouts to be in the form of an income stream.

“The future of lump sum disability payments looks unsustainable,” Mr Minto said.

“I doubt you will see lump sum payouts in the future as the structure of benefits is redesigned.”

Mr Minto said the increased involvement of lawyers had helped to boost the number of claims, but he questioned whether they had caused more claims to be accepted.

“I think the presence of lawyers has increased the awareness of members to their rights to make a claim,” he said.

“I don’t think any super fund has paid a claim that wouldn’t have been paid if a lawyer was not involved.”

More than 75 per cent of all disability policies issued in Australia are now made through super funds.