Many organisations not aware that employee insurance premiums may be increasing due to challenges within the life insurance market.

New survey reveals Australian businesses are in the dark about the changing superannuation and insurance landscape

Recent significant changes to the superannuation and insurance landscape have left Australian businesses reeling, with many taking little or no action to mitigate the impact on their employees and their bottom line.

This is one of the major findings of the recent Aon Hewitt Superannuation and Insurance Pulse Survey (the Survey). The Survey, which collected data from 131 organisations around Australia, provides an overview of current superannuation and employee insurance practices and details how organisations are responding to the rapidly changing environment.

The results of the Survey are of particular interest now, given the number of significant changes to superannuation that have recently been introduced. These include the second increase in the superannuation guarantee (SG), from 9.25% to 9.5% in July 2014, and changes to concessional contribution limits.

Ashley Palmer, Principal & Actuary within Aon Hewitt’s Retirement and Financial Management team, said that organisations were well-prepared for the second increase in the SG and other legislated changes such as MySuper. However many organisations are not aware that employee insurance premiums will in many cases be increasing due to challenges within the life insurance market.

“Many organisations are unaware that premium increases are on the cards because they have premium guarantees in place. They may therefore not be informed of the likely increases in premiums by their insurer or super fund until the guarantee is due to expire,” he said.

In fact, according to the Survey, just under four out of ten (38%) organisations have been informed that their group life premiums will rise, and of those which have been informed, more than half (52%) do not know how much the increase will be.

“Australian companies need to assume that insurance premiums are going up, and the risk for companies is that the increases are potentially substantial, which could have a big impact on their bottom line where the employer pays these premiums. The Survey shows that in some cases premiums have more than doubled.

“When you think about the effect of MySuper and the insurance changes together, it is astounding that nearly 40% of organisations have no intention of undertaking a review of their corporate superannuation and insured benefit arrangements to understand the possible effects,” Palmer explained.

When companies were asked about their policy regarding the cost of insurance, approximately 60% of companies surveyed reported paying insurance premiums in full or in-part on behalf of employees, with employees meeting the full cost themselves in the remaining cases.

“How employers manage the communication of these increases to their employees will also be vital,” Palmer said.

Other key findings from the Survey include:

• Only around one third (31%) of organisations set aside additional funds on top of the remuneration review budget to cater for the increase in SG to 9.5% in July 2014, a further 28% allocated funds from within the remuneration budget, and for 18% of organisations their employees absorbed the cost under a total remuneration package approach.
• When employers currently paying above the SG were asked whether they intend to continue to pay more than the mandated amount, over half (56%) said that they would be giving up their market leading position in the future to eventually be paying at the SG rate.
• Only a quarter (25%) of those employers currently paying above the guaranteed level said they would continue to increase their super at the same pace as the SG.

In conclusion, Palmer said that given superannuation is the highest benefit spend after pay for most organisations, and that around 60% of organisations pay insurance premiums in full or in part for their employees, Australian companies would be well advised to be aware of the changing landscape and to take action to mitigate risk.

“The potential benefits of conducting such a review are many, and include identifying cost savings, harmonising approaches, removing or de-risking legacy arrangements and implementing consistent and competitive insurance arrangements for all employees.

The bottom line is that superannuation and related insured benefits are an expensive and highly regulated component of an employee benefits package, so taking steps to maximise the potential return on this major spend and communicate it effectively is crucial for success,” Palmer said.

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