NULIS INSURANCE COMMITTEE WORKSHOP r~ur4Jta ~Supu Up~

Date 12 July 2018

NAB.005.913.0041

CONTENTS

2

Item Page Time

Introduction 3 12.00 – 12.10

Section 1 – Impacts on roadmap 8 12.10 – 12.40

Section 2 – Delivery Approach 15 12.40 – 1.10

Section 3 – Update on TPD/ADL 20 1.10 – 1.40

Section 4 – Key questions for the Trustee 23 1.40 – 2.00

Appendices

26

NAB.005.913.0042

NAB.005.913.0043

INTRODUCTION

Date 12 July 2018

INTRODUCTION

4

Whilst this pack is heavily focussed on the significant compliance requirements introduced by the Budget announcements, Management has not lost sight that a commercially viable best in class product will be required to succeed in the post budget/royal commission/productivity commission world.

The current roadmap captures the findings of the most recent triennial design review, which confirmed that our product is generally market competitive across key aspects. In saying that, the insurance and broader superannuation environment will undergo significant change over the coming years. This will create opportunity to consider what could (or should) be different about our offering at a time when we are establishing our stand-a-lone wealth business.

NAB.005.913.0044

PURPOSE

5

This purpose of this pack is to provide the NULIS Nominees (Australia) Limited Insurance Committee with the following:

• Section 1: A summary of how the Federal Budget 2018 reforms align with the Trustee’s existing insurance in super roadmap and how they will impact on delivery timeframes;

• Section 2: An overview of the project framework and prioritisation process that will be applied to deliver the overall insurance in super program of work, inclusive of the Federal Budget reforms.

• Section 3: A progress update on potential solutions to address the high rate of MKBS/PS declined TPD claims, for those members assessed on the basis of the Activities of Daily Living (ADL) definition; and

• Section 4: Check in with the committee to seek clarification on key issues requiring Trustee input and endorsement of proposed direction.

NAB.005.913.0045

BACKGROUND

6

• There is a significant program of compliance, product design, process uplift and enablement work to be completed in the insurance in super space over the next few years.

• The scope of this work covers the Trustee’s agreed priorities and product enhancements, the requirements of the Code and recent Federal Budget reforms.

• In addition to this large volume of change, the out workings of the Productivity Commission review and the Royal commission add uncertainty to the environment which are likely to mean this work will continually evolve.

• The work is expected to occur over a period of several years, noting that other significant business activities including Platform Migration (Superb > Compass) and separation of the Wealth / NAB Group businesses will be occurring in parallel.

• Management is working to establish a revised insurance in super roadmap or ‘transition plan’, that will articulate how, when and in what order the above work will be completed, taking into account the members needs, the need to remain compliant, as well as alignment with agreed Trustee initiatives and the broader Wealth priorities as they impact the members and the business.

NAB.005.913.0046

BACKGROUND

7

High level timeline

31 Dec 2018 Funds to publish

Code Transition Plan

1 July 2019 Funds to comply

with Budget requirements

MKBS/PS Standard and PPP re-rates

Oct 2018

NULIS Insurance Committee to approve Code Transition Plan

July 2019 - Jun 2021

Implement and deliver remaining Code

elements

July 2018

TRUSTEE WORKSHOP

August 2018

Update to NULIS Insurance Committee

30 June 2021 Deadline for funds to

comply with Code requirements

Feb - May 2019 First round of Budget

member communications to be sent

2019/20 (TBC) Separation and Platform Migration

• The budget requirements make 1 July 2019 the key date not only for meeting compliance requirements but also in terms of product strategy decisions.

• Work then logically can be broken into: • Completion of the Code transition plan by 31 December 2018. • Work required to be completed by 30 June 2019 for budget compliance and that can

be included in the MKBS/PS re-rate. • Work that will follow post 1 July 20-19 to complete delivery of the Code and other

product roadmap requirements.

NAB.005.913.0047

NAB.005.913.0048

SECTION 1 - IMPACTS ON ROADMAP

Date 12 July 2018

BUDGET SNAPSHOT

9

The budget and code changes are transformational to the way insurance will be offered through super.

• Around 40% of our membership (or around 250k members) are expected to be impacted.

• The ‘opt in’ model changes the way ‘default’ insurance has been provided to members through their super.

• Funds and insurers need to ‘re-set’ and work through these changes.

• The changes to insurance combined with the productivity commission’s proposed changes to super more generally will continue to push the industry towards lower cost and simplification.

• Member engagement will be key.

• Appendix 2 provides further detail of the insurance changes and impacts on our members.

NAB.005.913.0049

NAB.005.913.0050

The table below provides a view of the insurance in super roadmap, the status of each initiative as presented to the 30 May 2018 Insurance Committee meeting and the original timeframes for assessment and implementation.

NAB Financial Year

Review of Insurance Management Framework

Insurer Choice in MKBS

Uplift insurance disclosure

TPD Definitions - Reduce impact of ADL definition, adopt appro priate claims principles

TPD Definitions: MKSF ADL definit ion & improved claims principles

Pricing-Female PPP premiums

Insurance in Super Vol. Code o f Practice

Implement Lifestage in MKPS

Introduce a trigger for ceasing IP cover in the

Perso nal Divisions

Reducing death cover for less than 35 years

old.

Pricing-Collar Ratings & MKBS Tailored Plan

Strate

Commercial aspects of Insurance in super

Retail Initiatives raised via triennial review

10

2017

Review of IMF & Claims Philosophy

Assessment

Assess Implement -

Ins. Guides

2018

lmptemen

across insur rs

lmplemen

Other c !lateral

Assessment (incl. MLCL) I plement

Assessment (incl. MLCL)

Assessment (incl. MLCL)

I plement

I plement

2019

Assessment Ass sment/lmplement Implement

Assessment (incl. MLCL) Implement

Assessment (incl. MLCL) Implement

Assessment (incl. MLCL) Implement

Asse sment (incl. MLCL)

Assessment ncl. MLCL)

Asse sment (incl. MLCL)

RAG STATUS UPDATE -30/0512018

Green ISOP 14 llnallsed durl'ng th<> quarter and llnal ISOP·approved by OlTon 8/S/2018.

Green Al)proved by Commltt"" In December 2017; on track for lmplementadon.

Management -progressing review and uplift of Insurance Guides. l.n llne with feedback from OGC. we have Amber commenced c:u.stomer testing on the proposed IG templa te. Once feedback Is Incorpora ted, IG's to be

submitted to the August OGC for approval ahead of dlsctosure: roll.

l n1tlal paper on Insurance benefit deslgn Issues-, In particu lar Impact of the AOL definrtion on decline Amber rate-:s, Is being presented to this meeting. Signlffc.ant a na lysis on member lm'pac.ts are being worked

through with Ml.Cl, to ~nabl<> l mpl<>mentadon of changes In line wi th Oec..moor 2018 MKSS/PS r.,.ra~.

Closed AJI Implementation steps-are now complete for MKBS/PS and Plum Super, Including updates to Insurance pol lc1es: and appropriate ttaln1ng for the Trustee Cl alms teams.

Gree n Adjustment of PPP preml um shape is In sc.ope to be Implemented as part of December re-rate {subject to conflrmation of review approach. -as per PPP pricing paper befog presented to this meeting).

Green A separate update on the Code Is being presented to this meetJng.

SlmpleNeeds project considering on.going per$ooal pl an strategy, with lnsur·ance desi gn change-likely to form part of this project. Analysis for this lnltlatJve to be completed onc.e design changes aligned with

Amber Dec 2018 re-orates are .agreed, as per sequendng/ Impl ementat ion tfmeframes outl l ned In design paper pr<>S<>nted to (hi~ """'11 ng.

Cod@analyl s has commenced to understand Imp.act of this change to member·s. Onc~analysis completed, Amber Mana,gement wtll confirm Implementation timeframe (as partoftheCodeTransttton Pl an) and update

Roadmap ac.c.ordlngl y.

M LCL 1s currently assessing the impact of reduci ng death cov~ for younger rnemb@'rs1 part!cularly for the

Amber dmult Uf~tages design. A broader updaoo and r ..commendatlons on proposed b<>n<>llt design chang~ will b<>provl ded to the eomm;n.,., In August 2018, Incl uding confirmed lmpl..mentatl on dat<>S.

Green This wlll be a si gni fi cant compon<>nt of the ongoing d~lgn work/analysl s.

Green

Weare continuing to asses.s alternatl ve desi gn options and Implementation strategies to reco\ler the costs assoclatedwlth managing both group and retail insurance In super arrangements . lmplementatloo date TBC, but llkely t.o be aligned with MKBS/PS and PPP r.,_ra t~scheduled for December 2018 (llsted as Q3 2019 on roadmap).

Green Deep dl ve on retail data completed Jn conjunetfon with Heron and presented to M anagement. A separate paper l s being pr<>S<>nted to this meatn.g.

TRUSTEE ROADMAP Impact of Federal Budget 2018 reforms

11

• We expect the proposed reforms to largely be passed as legislation.

• This will make 1 July 2019 the key date not only for meeting compliance requirements but also in terms of product strategy decisions.

• Non critical items will need to be deferred.

• MLCL have indicated they would be prepared to push out the timing of the 31 December 2018 re-rate for MKBS/PS and PPP standard rates to 30 June 2019.

• This is good for members as the budget impacts are likely to lead to premium increases.

• As a result the key decision becomes what can reasonably be included in the 30 June 2019

re-rate (along with ensuring we meet the compliance obligations required by 30 June 2019).

• The following slides provide further commentary for each of the initiatives and proposed timing.

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TRUSTEE ROADMAP Proposed~ t.o ~ ~ 30 J ~ 201q rerrab.,

Management proposes that the following items should be prioritised. lnit1ative Alignment w1th Code/Budget Original Delfvery Revised Deliver) Rationale for change Date Date

No specific Code/Budget alignment, however a key Trustee has requested changes to AOL definitions be priority for the Trustee in addressing decline claim rates progressed as a priority. The required benefit design

TPD Deftn1t1ons -and affordab le insurance cover. MLCL currently changes, administration system changes and member

Reduce impact of completing analysis on potential solutions, wit h Heron Q3-Q42018 1July2019

communications mean t hat most likely outcome is these

AOL definition, analysis also to be considered. changes are best achieved via alignment with Budget work. As part of finalising proposal to the Trustee,

Refer to Appendix 4 of this pack for further update. Management will continue to explore whether partial aspects of a solution can be implemented sooner.

Pricing - Female PPP re-rate likely to be mid 2019 to allow Budget impacts Aligning the change to pricing structure with broader re

PPP premiums to be factored into pricing, otherwise no specific Q4 2018 1July2019 rate will ensure optimal member experience. alignment.

Introduce a Budget reforms for inactive members directly address Budget reforms have effectively superseded this ~rigger for Trustee' s requirement to cancel IP cover in Personal initiative. The new reforms require cover (not just IP ~eas1ng IP cover Divisions after a period of no contributions. Q1-Q3 2019 1July2019 ::over) to be turned off after 13 months inactivity and In the Personal will meet the Trustee's requirements and also introduce D1v1s1ons appropriate member communication triggers (6/9/13

months).

Proposal to lift current MKBS tailored plan threshold

Pricing - MKBS Tailored Plan Strategy-transition of existing (small) plans Ongoing but rom 100 to 200 members within existing rate guarantee

Tailored Plan to base rates (or a fact of), otherwise no specific Q3 2019-Q2 commence late period. Likely to be submitted to August meeting for

Strategy Budget/Code alignment. 2020 2018 approval and will roll through portfolio as re-rates occur. Timing of existing plans transition to be confirmed, however it would make sense to align with MKBS/PS anc PPP re-rate.

We are continuing to assess alternative design options and implementation strategies to recover the costs Details of final solution to be confirmed.

Com me rd al associated with managing both group and retail -aspects of insurance in s uper arrangements. Implementation date Q2-Q42018 1July2019 If we agree to implement in next 12 months, it wo1 atd ~nsurance in super TBC, however for group insurance likely to be aligned

make sense to align with MKBS/PS and PPP re-rate with MKBS/PS and PPP re-rates in mid 2019, otherwise no fiF.f. 12 specific Budget/Code dependencies.

NAB.005.913.0053

The following initiatives are partly addressed by the budget changes. Management proposes that they are lower priority and should be considered as part of broader product strategy post 1 July 2019.

ln1t1at1ve Alignment w1th Code/Budget Ortg1nal Deliver) Revised Delivery Rationale for change Date Date

Budget reforms for younger members (all new Scope of the BAU initiative was to consider reducing members u/25 wi ll not receive default cover)

Reducing death partially addresses Trustee's initiative to review and levels of cover up to age 35, so reforms do not

cover for less than reduce levels of cover for younger members. Q1-Q3 2019 TBC (Post 1 July exactly replicate the Trustee's original intent. Further

35 years old. 2019) Mtork required to understand eligibility requirements after age 25 - insight from MLCL and other insurers requi red .

Elements of this change were to address erosion of Significant implementation effort and not benefits - to a la rge degree this will be addressed by dependent or linked to Budget reforms, so t o be ~he Budget reforms. scheduled post1 July 2019.

Implement TBC (Post 1 July At a more strategic level the MLC SF project will Q1-Q3 2019 consider ongoing personal plan strategy, with L1festage 1n MKPS 2019)

~nsurance design change likely to form part of this work.

Should be considered in conjunction with previous 'nitiative land broader nrod uct stratenv\

13 I

NAB.005.913.0054

TRUSTEE ROADMAP IfR.Mt. tltatrvP.-0~0"'9 rutdMt~pri.orifj

Altgnment w1th Code/Budget Or1g1nal Delivery Revised Deltvery Rationale for change Initiative Date Date

Collar ratings - no specific alignment. Productivity Q3 2019-Q2

Collar ratings - Review of collar ratings I pricing structure is a Pricing - Collar commission report did mention standardisation of 2020

TBC (Post 1 July significant piece of work with no Code/Budget Ratings TPD defi nitions. 2019) dependencies, so to be scheduled post 1 July 2019

IThe Code has multiple (albeit broad) obligations in !This is a large ongoing piece of work. The respect of uplifting communications quality and Customer Experience team will be engaged in using easy to understand language. respect of developing communications . and

Current focus is on updating Insurance Guides and re N/A (ongoing language principles that align with Code intent U pltft insurance Q1-Q42018 with Product Insurance to provide technical input. disclosure rat e letters. The Trustee's priorities are improving uplift) disclosure of collar ratings and other key informatior

Immediate focus needs to be on 30 June 2019 to ensure members are aware of impacts on budget compliance requirements. insurance coverage, with a review of claims letters and experience also to be completed.

Discussions are ongoing with MLCL and analysis is Retail- al1gnmen1 IThe Trustee has raised a number of queries relating being completed to understand extent of the to equity issues across the retail book. In particular,

Q3 2018-Ql N/A (ongoing ~ariation in terms and pricing. Ito Trustee this includes MLCL's change in approach relating to 2019 uplift) preferred pr1c1ng previous undertakings made to align backbook serie

his will inform t he development of some pricing basis pricing and terms. pri nciples or minimum standards.

14 I

NAB.005.913.0055

SECTION 2 - DELIVERY APPROACH

Date 12 July 2018

DELIVERY Project framework

16

• Given the scale of insurance in super work to be completed over the next few years, Management has established a team to define scope, prioritise the work and develop an overall transition plan with the focus on the work to be completed prior to 1 July 2019.

• The planning team of ~9 FTE is comprised of resources and subject matter experts from Product Insurance, a Program Director, Business Analysts, Solution Architecture and the Regulatory Portfolio Office.

• In developing the draft transition plan, this team has undertaken an approach to bring together the various aspects of the Insurance Voluntary Code, Federal Budget, Product Roadmap and simplification (migration) to identify dependencies and delivery synergies.

• Based on the proposed priorities, the next step to evolve the transition plan will be to further decompose the prioritised scope and breakdown down the work into more manageable groups that can deliver business value and gain deeper stakeholder feedback from the following key groups: Operations, Technology, Customer Experience, Retail Super and Legal.

• Management has been building persistent delivery teams with domain expertise in key areas such as data, process change and product change. It is expected that as the transition plan work is further understood and broken down, when ready the work will be fed into these teams based on priority. It is intended to also leverage the experienced resource base that has been working on Tailored Insurance with mobilisation ramping up in early FY19.

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DELIVERY Project framework

17

A key aspect of executing the transition plan will be to build in assurance activities during the lifecycle. It is anticipated that the transition plan will require: • Assurance to provide confidence that areas where management believes we are already compliant can

be evidenced • Assurance during delivery to provide confidence that compliance dates will be met • Involvement of MA Compliance to support obligation traceability to process and controls, along with

identifying and implementing any necessary uplifts • Other aspects that may require independent assurance

Member experience Management is reviewing the structure and resourcing of how our communications to members are prepared. The communications strategy will ensure that members are provided with consistent information that adds value to decisions, takes into account broader MLC Super Fund member communications and experience, uses language aligned with the Code requirements and provides appropriate support through these changes. Please also refer to appendix 5 regarding our member experience principles. Insurers MLC Limited has been proactive in addressing the requirements of the Code, supporting Management with analysis and ensuring that various pricing reviews or other product changes are appropriate in the context of the Budget reforms. Product Insurance will continue to lead the interactions with MLC Limited and other insurers, ensuring that the insurance in super program has the appropriate insights and technical detail to support decisions.

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DELIVERY Prioritisation

18

To ensure this combined program of Trustee, Budget and Code work is appropriately prioritised, Management has established the following criteria:

Through a series of initial workshops with the Product Insurance, Business Delivery and Regulatory Change teams, the above criteria have been applied to each Budget reform, Code obligation and Trustee initiative to provide an initial view of how this work should be prioritised.

A more detailed breakdown of the proposed streams of work, sequencing and initiatives to be delivered in the 12 months to 30 June 2019 is included as Appendix 3.

We must be / remain compliant

We will adhere to Trustee endorsed priorities and initiatives

We will provide a positive customer experience for Insurance in Super members (retain customers / NPS) and we must do that in the context of the members overall experience with MLC Super

We will simplify and automate the Insurance in Super environment (reduce cost to income / support Superb to Compass simplification)

We will grow maintain a commercially viable product (new customers / NFF)

NAB.005.913.0058

DELIVERY ~ f;() t .Tuff 201q

12th July

Insurance Committee (IC) (Workshop­Code/Budget

impacts)

3om Aug

IC (Update on Transition Plan)

Transition Plan updates based on IC review I seek other required endorsements e.g. only- PIRP

content for website

IC (if follow up for plan approval required)

DGC (Initial engagement and

comms. principles )

IC (Transition Plan

Approval)

15rh Dec 2018

Publish on our websites

(MLC/Plum) our transition plan for becoming

compliant with the standards of the Code no later

than 30 June 2021

Budget mailing data to be extracted by 1 April; communications issued

by1 May

NAB.005.913.0059

1July2019

Budget reforms take effect: • Removal of cover for existing

inactive/low balance members • New ongoing process to monitor

above accounts • No default cover for u/25's or <$6k

balances

Other product changes aligned with Budget implementation

I

NAB.005.913.0060

SECTION 3 - UPDATE ON TPD/ADL

Date 12 July 2018

21

MKBS/PS TPD/ADL

Management has been working with MLCL to deliver a potential solution to quickly address the key issue of TPD decline claim rates in MKBS/PS. In the background, we know that the productivity commission has raised the idea of standardised TPD definitions and it is difficult to say with any certainty exactly where the overall industry landscape will settle. As a result the proposed approach below may be an interim step. Nonetheless, it goes a long way towards addressing Trustee concerns relating to use of the ADL definition for casuals, special risk and unemployed members. Importantly, as we have worked closely with MLCL, this approach has the advantages of: • Being achievable to be able to be implemented as part of the 30 June 2019 re-rate;

and • Having minimal premium impact on the majority of the membership (noting that this

assumes many of the casuals will no longer be provided cover).

Heron have recently provided an assessment of TPD definitions used in the market. We will work through this in detail and consider in our more formal response to the Trustee. Some key points Heron raised include: • TPD definitions generally are complex (often including 4-5 components); • ADL definitions are still prevalent in the market but have become less restrictive; • Lower levels of cover are common for casuals.

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MKBS/PS TPO/ AOL - Proposedappro~

The key elements of the proposed approach are as follows: • All casual and special risk members assessed on ETER

• Only those unemployed not to be assessed on ETER-they would use a home duties definition

• Reduced sum insured for new casual members (although option for existing members to retain sum insured); and

• Minimal, if any, pricing impacts for other members in the fund • This is key to maintain product competitiveness.

Perm. full time

Perm. Part Time for at

least 15 hrs/week

Proposed TPD definition

Fixed-term for at least 15 hrs/week

ETER

Perm. Part t ime/fixed

term less than 15 hrs/week

Seasonal or contract Casual Hazardous

Occupation Over age 65

Further details on the proposed solution are included as Appendix4.

22

Home Duties

-- -'i<t- = - .

I. --~ .. .) Hume :UU\!~1 Unemployed

NAB.005.913.0062

I

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SECTION 4 - KEV TRUSTEE QUESTIONS

NAB.005.913.0064

RECOMMENDATIONS I KEY OUESTIONS FOr !?~~!,W~(eotti;.)

The table below sets out key questions where management is seeking input from the Trustee in order to continue progressing with the (revised) insurance roadmap.

Issue Management comments

rrrustee delegate Management seeks a delegate from t he insurance committee to be able to seek Trustee input in between ormal committee meetings

Timing of MKBS/PS and PPP re-rate Management propose that MKBS/PS Standard and PPP re-rates be deferred until mid 2019 (aligning with Budget and optimising member experience), subject to confirmation from MLCL

Management seeks Trustee endorsement to continue working with MLCL to implement the proposed changes MKBS/PS TPD/ADL to the MKBS/PS TPD design as part of the 30 June 2019 re-rate. Management will continue to explore whether

partial aspects of a solution can be implemented sooner. We are continuing to assess alternative design options and implementation strategies to recover the costs associated with managing both group and retail insurance in super arrangements.

tommercial aspects of insurance in super If we are to implement in next 12 months it would make sense to be aligned with MK BS/PS and PPP re-rates in mid 2019. Management seek Trustee's preferred timing to introduce the updated approach to commerciality ·n suoer oarticularlv in context of external environment focus on fees. Management seeks Trustee endorsement of the items proposed to be included in the 30 June 2019 re-rate and those that are proposed to be pushed out to a later date. In particular, the following items should be prioritised after 1July2019:

- The Budget reforms only partially address the original Trustee initiative to reduce death cover at younger ages, which was focused on members up to age 35. Management recommends reviewing the LifeStages scale to determine whether a lower level of cover should apply that gradually increases from age 25 - 35 but at a later time post 1July2019.

Prioritisation of roadmap initiatives - The introduction of lifestages to MKPS should coincide with the MLC Super Fund program personal plan broader strategy and should occur after 1 July 2019.

- The initiative to cease IP cover after a period of inactivity will be met as a result of the budget changes.

Management also recognises that there will be opportunity to refine our insurance product strategy, particularly as the impacts of the Budget changes become better understood. As the analysis and implementation of the Budget changes progress, Management will revert to the Trustee with any proposed-i changes to strategy or product design, to ensure the product remains well positioned and competitive in ~uture.

24 •

NAB.005.913.0065

RECOMMENDATIONS I KEY OUESTIONS FOr !?~~!,W~(eotti;.)

The table below sets out key questions where management is seeking input from the Trustee in order to continue progressing with the (revised) insurance roadmap.

Issue

Iterative approach to improving insurance disclosure

MKBS/PS collar rati ngs

(ode implementation plan

25

Management vf ew I questfons

Rather t han a specific delivery date to complete a review of a ll disclosure, Management recommends applying key Code principles to all insurance communications issued or reviewed over t he next 2-3 years {Code compliance no later than Ju ne 2021).

This is a significant piece of work and Management propose to move this out beyond 1July2019. The key issue of declined claim volumes (for Special Risk members) will be largely solved via AOL definition change and via ongoing uplifts t o disclosure. Given volume of work to be completed in next 12 months, a broader review of pricing st ructure I collar ratings is not achievable.

Due to the significance of the budget changes (that were introduced after the Code requirements ), most industry participants propose to issue a 'high level' implementation plan by 31 December 2018 which may be updated/revised over time as industry developments settle. This approach is consistent with guidance from ind ustry associations and worki ng groups. Management seeks Trustee endorsement for t he Code implementation plan t o be high level.

Management is a lso assessing how t he Code requirements in respect of Automatic Insurance Members (Al M) will apply to t he Trustee' s products. The following groups will be excluded from t he specific AIM requirements (although t his does not mean certain 'global' processes or business rules described in t he Code, eg. cancellation of cover, wou ld not apply where it makes sense to do so):

• Members with an underwritten retaiVindividual insurance policy

• Members where employer pays or subsidises insurance premiums

• Defined Benefi t members

• lnsurance/riskonlv members

I

NAB.005.913.0066

APPENDICES

APPENDIX 1 INSURANCE GOVERNANCE POLICY – GUIDING PRINCIPLES

27

The aim of the Trustee is to provide a wide variety of insurance cover and choice across the products in the RSEs which have insurance as a product feature, by allowing flexibility for Members to select cover to meet their underlying needs. The Trustee provides flexibility in product design, recognising the diverse nature of its RSEs’ membership. In formulating its insurance offering to Members the Trustee adopts the following principles: • To provide flexible, sustainable insurance cover to a wide range of Members • To provide access to help, guidance and advice for all Members to consider their insurance needs and make their own choices • To provide reasonable equity between Members by matching insurance costs to risks in a practical manner • To exercise, in relation to all matters affecting the RSEs, the same degree of care, skill and diligence as an ordinary prudent

person would exercise • To limit automatic insurance cover (or certain types of cover) for Members in riskier occupations when cover cannot be provided

at a reasonable cost • To have sound working relationships with all Insurers engaged (or being considered for engagement) for the provision of

insurance to Members, ensuring that the Insurer selection and review processes operate in Members’ best interests • To generally only use one Insurer per employer plan • To deal with all Member insurance claims:

o Respectfully and empathetically; o Efficiently and promptly with clear communications; and o By pursuing, to the fullest extent, all claims that the Trustee considers both reasonable and which have reasonable prospect of

success. • To consider key risks associated with acquiring insurance on behalf of Members and formulate strategies for managing and

monitoring these risks • To comply with the requirements of SPS250 and all applicable legislation, in particular Section 52(7) of the SIS Act.

NAB.005.913.0067

APPENDIX 2 - FEDERAL BUDGET 2018 Overview of insurance changes

28

The Federal Government’s Protecting Your Super package, announced in the 2018/19 Budget, seeks to implement a number of amendments to superannuation relating to erosion of benefits and insurance in super. In particular, the Treasury Laws Amendment (Protecting Superannuation) Bill 2018 aims to make amendments to the superannuation environment which in part, stipulates that Trustees must offer or maintain insurance for its members holding choice or MySuper product only if the member has directed (via opt in) the Trustee in relation to: • a new account held by a member who is under the age of 25; • an account that has a balance of less than $6,000; or • an account that has been inactive for 13 months or more. The Trustee must notify affected members on or before 1 May 2019 of the changes as to give these members an opportunity to elect to continue to have insurance coverage beyond 1 July 2019. From this date the Trustee will also need to notify members that have been inactive for six or nine months on the basis that should the account be inactive for a total of 13 consecutive months, the insurance will be offered on an opt in basis. Alignment with Code The majority of the 179 Code obligations remain relevant and in scope for the Code Transition Plan, however several Budget items overlap or supersede the Code. Whilst the Code required Trustees to turn off cover for inactive accounts below $6,000, the Budget further stipulates opt in provisions for under 25 year old members, low balance accounts and inactive accounts (of any dollar value). Furthermore, the Budget goes beyond the Code in that inactive account (>13 months) balances of less than $6,000 will be transferred to the ATO.

NAB.005.913.0068

APPENDIX 2 - FEDERAL BUDGET 2018 Premium impacts and implications

29

Premiums • As a result of cancelling insurance cover, we are expecting an immediate reduction (ie. inactive and low

balance members) of around 40% of group insurance PIF (~$150m) at 1 July 2019. • The relative premium reduction will grow over time as younger members are not automatically opted in to

default insurance. • Existing premiums are likely to increase initially to account for this material shift and it will take a number of

years for the ongoing premium impacts to settle. • Significantly larger than expected under the Code, as this only included members with inactive accounts AND

had a low balance, whereas the budget test is an OR test (ie. any of < 25, low balance, inactive). Insurance coverage • Approximately 250k members (or around 42%) with group insurance will immediately have cover turned off

at 1 July 2019. Our analysis shows that a significant proportion of claims paid in 2017 were to members with balances of less than $6k. These claims were spread across death and TPD members with material average claims sizes:

o 26% of MKBS/PS claims (average $143k) o 10% of Plum/PPP claims (average $185k)

• Based on current legislation members won't receive cover until they also reach a $6k account balance;

therefore in practice cover won't start immediately at age 25. As members move from the opt-in arrangement to opt out after age 25, this will introduce a selection impact and is likely to require some form of underwriting (or at least require members to satisfy adjusted at work requirements).

• At this stage we expect there to be a carve out for insurance only members and members whose premiums are paid by employers.

NAB.005.913.0069

APPENDIX 2 - FEDERAL BUDGET 2018 Detailed member impacts

30

MKBS/PS

Notes: •Data is effective 30 March 2018 •Data excludes members who have made a choice and members where employers meet the cost of premiums. It is unclear whether these members will be excluded from the proposed requirements •Regarding inactive accounts, the ‘last contribution >13mths’ data takes into consideration contributions and not rollovers so is indicative only but management is comfortable that the key messages are represented.

Total FUM PIF Death TPD IP Total FUM PIF Death TPD IPHow many <25?

Default Members 52089 220,131,001$ 10,904,994$ 52079 52047 5567 14860 86,075,516$ 2,934,837$ 14855 14815 1419Employer Paid 980 6,787,475$ 183,740$ 978 970 444 0 -$ -$ 0 0 0

Member chosen cover 65 1,315,094$ 22,029$ 65 62 32 116 1,439,357$ 20,647$ 116 116 2853134 228,233,570$ 11,110,763$ 53122 53079 6043 14976 87,514,873$ 2,955,484$ 14971 14931 1447

How many with balances <$6k

Default Members 100456 171,873,964$ 35,072,122$ 100396 99532 12851 48436 106,718,312$ 19,412,499$ 48401 47559 4729Employer Paid 4116 5,811,621$ 2,659,185$ 4106 4074 1309 0 -$ -$ 0 0 0

Member chosen cover 467 1,270,525$ 825,944$ 458 401 126 2432 6,924,203$ 1,349,702$ 2418 2321 323105039 178,956,110$ 38,557,251$ 104960 104007 14286 50868 113,642,515$ 20,762,201$ 50819 49880 5052

Last Contribution >13mths

Default Members 49785 760,639,176$ 20,435,226$ 49721 48949 5418 102885 2,311,850,044$ 57,134,408$ 102816 100487 9756Employer Paid 1421 8,684,756$ 963,831$ 1418 1409 284 0 -$ -$ 0 0 0

Member chosen cover 1441 72,707,028$ 1,799,895$ 1425 1299 301 9716 286,082,102$ 6,116,172$ 9692 9452 145252647 842,030,960$ 23,198,952$ 52564 51657 6003 112601 2,597,932,146$ 63,250,580$ 112508 109939 11208

Any of the above criteria

Default Members 132813 1,044,989,871$ 48,192,937$ 132725 131395 17683 119588 2,395,369,603$ 63,247,486$ 119510 116976 11729Employer Paid 4594 19,867,794$ 2,863,601$ 4582 4543 1545 0 -$ -$ 0 0 0

Member chosen cover 1690 74,472,725$ 2,311,308$ 1673 1517 399 10156 288,260,833$ 6,554,293$ 10131 9847 1525139097 1,139,330,390$ 53,367,846$ 138980 137455 19627 129744 2,683,630,436$ 69,801,779$ 129641 126823 13254

<$6K & 13mths >

Default Members 28623 40,229,799$ 9,684,288$ 28580 28262 2625 35298 79,190,284$ 14,017,719$ 35270 34612 3266Employer Paid 1286 348,707$ 832,209$ 1284 1277 236 0 -$ -$ 0 0 0

Member chosen cover 274 765,506$ 334,146$ 266 236 58 2048 5,861,909$ 924,203$ 2035 1982 26830183 41,344,012$ 10,850,643$ 30130 29775 2919 37346 85,052,193$ 14,941,922$ 37305 36594 3534

MKPSMKBS

NAB.005.913.0070

APPENDIX 2 - FEDERAL BUDGET 2018 Detailed member impacts

31

Plum Corporate / PPP

Notes: •Data is effective 30 March 2018 •Data excludes members who have made a choice and members where employers meet the cost of premiums. It is unclear whether these members will be excluded from the proposed requirements •Regarding inactive accounts, the ‘last contribution >13mths’ data takes into consideration contributions and not rollovers so is indicative only but management is comfortable that the key messages are represented.

Total FUM PIF Death TPD IP Total FUM PIF Death TPD IPHow many <25?

Default Members 6089 48,192,035$ 1,696,705$ 6078 6058 4816 1234 15,232,355$ 300,650$ 1233 1229 722Employer Paid 1590 11,096,999$ 472,814$ 1530 1518 701 0 -$ -$ 0 0 0

Member chosen cover 287 3,345,650$ 55,079$ 287 286 5 0 -$ -$ 0 0 07966 62,634,684$ 2,224,598$ 7895 7862 5522 1234 15,232,355$ 300,650$ 1233 1229 722

How many with balances <$6kDefault Members 15160 32,094,736$ 8,827,859$ 15102 15015 11733 6673 22,787,201$ 4,808,879$ 6648 6578 1761

Employer Paid 7971 8,228,650$ 5,439,577$ 6801 6668 3306 0 -$ -$ 0 0 0Member chosen cover 974 1,449,638$ 506,418$ 974 963 60 0 -$ -$ 0 0 0

24105 41,773,024$ 14,773,854$ 22877 22646 15099 6673 22,787,201$ 4,808,879$ 6648 6578 1761Last Contribution >13mths

Default Members 9228 816,209,676$ 3,741,810$ 9201 7315 1208 34100 2,267,132,754$ 33,344,585$ 34017 33653 6516Employer Paid 5139 63,629,800$ 3,872,091$ 3986 3898 1918 0 -$ -$ 0 0 0

Member chosen cover 300 15,444,986$ 334,118$ 300 291 34 0 -$ -$ 0 0 014667 895,284,462$ 7,948,019$ 13487 11504 3160 34100 2,267,132,754$ 33,344,585$ 34017 33653 6516

Any of the above criteriaDefault Members 25271 885,840,213$ 12,543,068$ 25188 23258 14037 36223 2,281,733,156$ 34,939,869$ 36132 35748 7585

Employer Paid 9486 80,653,000$ 6,440,449$ 8290 8136 3872 0 -$ -$ 0 0 0Member chosen cover 1289 19,844,166$ 758,546$ 1289 1269 87 0 -$ -$ 0 0 0

36046 986,337,378$ 19,742,063$ 34767 32663 17996 36223 2,281,733,156$ 34,939,869$ 36132 35748 7585<$6K & 13mths >

Default Members 1236 2,672,475$ 752,698$ 1226 1183 621 5037 17,490,121$ 3,335,647$ 5019 4966 971Employer Paid 4144 666,096$ 3,084,607$ 3015 2945 1609 0 -$ -$ 0 0 0

Member chosen cover 109 199,557$ 104,342$ 109 108 10 0 -$ -$ 0 0 05489 3,538,128$ 3,941,648$ 4350 4236 2240 5037 17,490,121$ 3,335,647$ 5019 4966 971

Plum PPP

NAB.005.913.0071

APPENDIX 3 - PRIORTISATION Streams of work

32

The prioritisation process has assisted with identifying the common features across the various reforms, obligations and product initiatives, allowing these to be segmented into logical streams of work. The intent is that as each particular stream is delivered it will provide value to the business, rather than simply delivering a range of unrelated items in order to meet compliance requirements. The initial work streams are classified as follows:

Initial priority

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APPENDIX 3 - PRIORITISATION Sequencing

33

The program of work will most likely be delivered in four main stages:

• Any Product Initiatives or Code obligations to be independently delivered ahead of Budget changes. These must be of sufficiently high priority or have minimal dependency on the Budget changes from a product design, efficiency or member experience perspective;

• Delivery of the Code Transition Plan for approval by the Trustee, and publication by 31 December 2018. Expect that Trustee approval of the Plan will be sought at the October Insurance Committee meeting;

• Product Initiatives or Code obligations to be delivered in alignment with the Budget changes, effective on 1 July 2019 (noting communications to be issued earlier in 2019); and

• Items that can be deferred until after the Budget changes, including obligations required under the Code that can be completed between 1 July 2019 and 30 June 2021.

NAB.005.913.0073

NAB.005.913.007 4

APPENDIX 3 -PRIORITISATION SUIHMfV!J of Wii.tdiJIP/.. 2018/tct

Work stream

Customer Data

Product Change (Federal Budget)

Product Change (Code)

Product Management

34

Activity

• Ability to capture customer data and identify based on certain customer criteria (low balance, contribution frequency), so we can proactively engage members pre Budget reforms

• Define appropriate and affordable benefit design for Automatic Insurance Members and understand implications for Code compliance

• Ability to generate member communications based on certain customer criteria (low balance, contribution frequency), in a sustainable manner

• Establish opt in arrangements for particular membership groups (new members u/25, <$6k) • Aligned activities:

- MKBS/PS Standard and PPP re-rate - Change to PPP female rate shape - Benefit design and TPD definition changes for Casuals, PT, Special Risk - M KBS tailored rate strategy - Commercial aspects of insurance in super

• Confirm where we already comply with the Code, including appropriate assurance oversight • Publish Code Transition Plan • Monitor and report on Code compliance

• Provide simple to understand, high quality communications in respect of the above changes • Processes to respond to customer queries or concerns in respect of the above changes, in line

with Code obligations

I

APPENDIX 4 - MKBS/PS ADL DECLINED CLAIMS

35

Preferred Insurer analysis Management has been working with MLCL to deliver a potential solution to the key issue of TPD decline claim rates in MKBS/PS as a result of casuals, special risk and unemployed members only being eligible for assessment against the Activities of Daily Living definition. The solution is intended to reduce as far as possible the number of members assessed against the ADL definition while minimising pricing impacts to the broader membership. A high level overview of the potential solution is provided below. Heron Report Heron has also been engaged to complete a market review of how other funds manage insurance for casuals and similar cohorts. Management will review the report once received, consider what other options are available and how MLCL’s potential solution compares to market. Next Steps Management will revert to the Trustee with a formal proposal (likely October Insurance Committee meeting), including change requirements (eg. technology build, disclosure, etc) and implementation timeframes.

NAB.005.913.0075

NAB.005.913.0076

APPENDIX 4 -MKBS/PS AOL DECLINED CLAIMS

Current TPD definition - ETER, ADL, Home Duties

The current Superannuation Industry (Supervision) Regulations 1994 definition of Permanent Incapacity references a member's ability to be in gainful employment whereas the TPD definition includes sub-definitions, such as Activities of Daily Living (ADL) and Home Duties, that do not. The current MKBS TPD definition is composed of the following sub-de fi ni ti on s:

Perm. full time

36

ETER

Perm. Part Time for at

least 15 hrs/week

Fixed-term for at least 15 hrs/week

Current TPD definition

Unemployed

Perm. Part time/fixed

term less than 15 hrs/week

Seasonal or contract Casual Hazardous

occupation Over age 65

Home Duties

Home duties

I

NAB.005.913.0077

APPENDIX 4 -MKBS/PS AOL DECLINED CLAIMS

37

Proposed new TPD definition - ETER, Home Duties

Assessing a claimant's ability to perform AOL rather than occupational duties when they were working in some capacity at the time of disablement ignores the context of the disablement, which is the basis of the assessment of the persistence of the disability in the future. Therefore, if a claimant is working in any capacity, it is reasonable to base the assessment of the totality and permanence of their disability on ETER criteria even if the claimants are casually, seasonally or permanently employed for less than 15 hours per week when they became disabled.

As such it is proposed that casually, seasonally or permanently employed for less than 15 hours per week members as at the date of disablement be assessed against the ETER TPD definition and no longer against the ADL TPD definition. Further, claimants that are defined as unemployed (unemployed for a continuous period of three months or more prior to the date of disablement) as at the date of disablement, will be assessed against the Home Duties TPD definition.

Perm. full time

Perm. Part Time for at

least 15 hrs/week

Fixed-term for at least

15 hrs/week

TPD definition

ETER

Perm. Part time/fixed term less than 15

hrs/week

Seasonal or contract Casual Hazardous

Occupation Over age 65

Home Duties

Home duties

I

APPENDIX 4 -MKBS/PS AOL DECLINED CLAIMS

Levels of cover Currently all members receive cover based on a plan's default insurance design, typically the LifeStages scale. For casual employees this may be higher cover than required or result in erosion of account balance. Therefore we are proposing that at time of joining the fund, eligible casual workers receive a lower level of default death and TPD cover that steps down as the member ages. This cover would be significantly lower than that of other members of the fund and will cost a flat unit rate of $X or according to an aged-based scale (TBC).

A member will be classified as a casual worker as per the advice of their employer at the commencement of their employment.

38

Casual age-based default death and TPD cover

Sum Insured

Step down in the death and TPD sum insured by $5,000

Step down in the death and TPD sum insured every 10 years

Age

NAB.005.913.0078

I

APPENDIX 4 -MKBS/PS AOL DECLINED CLAIMS

39

The benefits of the proposed TPD product changes

•

The proposed changes simplify the TPD definition by reducing the number of sub­definitions. Members are more likely to understand the TPD product

No pricing impact on the wider membership

Lower levels of default death and TPD cover for casual worker members giving their retirement balances a chance to grow

•

NAB.005.913.0079

Opening up the ETER TPD definition to casual members is in line with the market while removing the AOL definition altogether aligns with the Productivity Commission's recommendations to increase the value that consumers assign to group insurance cover

The changes are simple and intuitive which means that disclosures will also be simple and comprehensible to members

Relatively inexpensive given the shrinkage of the casual worker pool as a result of the 2018 Budget measures

I

40

APPENDIX 5 – Our member experience objectives

The insurance changes relating to the budget and code (although significant) are one of many interactions we are considering to achieve the best overall member experience. Our overall customer value proposition pillars will support the messaging to members. They are: • We make it Easy - We get the service basics right, we are where you want us (mobile & digital) and

we have simplified products & processes;

• We Support You - We proactively apply our unique expertise and information to help customers, empowering them with insight, advice & tools;

• We are Personal - We bring a human & personal approach to what we say and do for our customers in all of our interactions with them.

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