The real cost of supporting vulnerable members
Heightened expectations on trustees to provide demonstrable support to vulnerable members, as a result of the implementation of the Insurance in Superannuation Voluntary Code of Practice, is prompting trustees to consider a fresh new approach to tackling the issue.
Section 6 of the code, supporting vulnerable consumers, requires that trustees give specific consideration to implementing policies that provide special assistance to vulnerable members; including consideration of members' background and geography (e.g. remote areas), as well improving members' experience through the insurance claim process.
Accordingly, a fundamental shift in support for vulnerable members is evidenced in numerous Super Funds' Insurance Code Transition Plans. These plans show that approximately 80% of trustees have indicated that they will be working on addressing this code obligation from July 2019.
The change in trustees' approach to engaging vulnerable members has also been driven by member expectations post the Hayne Royal Commission. It would be fair to say members have higher expectations on trustees need to demonstrate best interest in every aspect of the trustee/member relationship. This includes an expectation among members that trustees' obligations extend to helping them with their financial and emotional resilience.
This is perhaps reflected in an increase in the number of Australians who are unable to meet reasonable and immediate family living expenses. In 2016, Good Shepherd Microfinance reported that two million people experienced high to severe financial stress, reducing their resilience ? i.e. their ability to recover from financial shocks.
Those impacted, particularly women, also experienced poorer socio-economic and health outcomes; particularly lower education, employment and income status. In combination, these factors increase their likelihood of experiencing financial hardship.
This societal challenge is now translating into a challenge for trustees today. The number of fund members seeking "emergency" access their superannuation early to fund day-to-day living expenses has increased.
For some trustees, this can mean up to one per cent of their membership base enquiring about accessing their super on hardship or compassionate grounds, with an average of $5000 sought per member. For a trustee with 500,000 members, this could result in a minimum outflow of $25 million in superannuation funds annually.
Importantly, this short-term funding for members does not always result in a sustainable change in the member's financial circumstances; and therefore, does not serve to build their future financial and emotional resilience.
In addition to the commercial impact on trustees of members accessing super early, the brand risk of not properly supporting vulnerable members is far greater. For members experiencing the need to make an insurance claim and who are finding the process difficult; or perhaps have had a claim declined; these members may hold the trustees in some way responsible. This negative experience is often communicated to family, workplace friends, and in some cases to the media. Historically, we have seen this negativity can result in litigation and brand damage, as well as creating a retention risk to the fund from existing members as well as potentially reducing the attractiveness of the fund to new members (employers, members or family).
As an industry, in these scenarios, trustees are shifting from considering what "can we do" to what "should we do?"
This is leading trustees to engage service providers with the specialist training and experience to appropriately engage members and provide the relevant support. While the claim outcome does not change; the level of support provided to the member is enhanced, demonstrating a greater level trustee social responsibility. The outcome is an improved member experience, including assisting members to cope with the claim outcome.
The social responsibility requirement extends to members who are looking to access their super early. Often, a member's one-off access of their superannuation is not the solution to the underlying stressor the member is enduring. Having the capability to recognise the member's underlying stressors and to then engage and inform them of relevant available community support and empowering the member to address their stressor is a more sustainable solution for both the trustee and member.
Supporting vulnerable members has increased in importance to trustees.
The cost of not doing so is not only financial but it also impacts the brand, with both existing and future members.
The capability that AFRM Claims Advocacy (ACA) brings to trustees is to be able to take the time to understand their members more deeply - what is really occurring in their life that is placing an emotion and financial drain on them?
Our Network Support Service model has professionally trained team members to identify the member's stressors; which may include housing, domestic, financial, social, mental health challenges etc.; identify the relevant community help available and empowering the member to leverage that relevant community support.
Coaching members on their community support options can often help a member better emotionally handle a claim outcome. It may also eliminate the member's need to access their superannuation early; which ultimately; is a more favourable outcome for the trustee and also maintains the member's superannuation funds for its intended purpose.
While supporting vulnerable members has always been a trustee obligation, the bar of that obligation has been well and truly raised much higher by the implementation of the code, heightened member expectations and wider societal challenges.
In addition to brand and reputational impacts for trustees, as noted above, are the commercial impacts of superannuation fund outflows, falling retention, increase challenges to attracting new business and potential for litigation.
All these factors are motivating trustees to consider how they can demonstrate greater social responsibility to their members. In doing so, they are potentially helping members' better cope with challenging personal circumstances; and therefore, helping them build financial and emotional resilience.
A positive outcome for all.