Super reforms reveal scale of underinsurance
The life underinsurance gap in Australia is worse than previously thought, according to new research from Rice Warner.
Rice Warner says superannuation legislation over the past 18 months has allowed the true extent of the underinsurance gap to be more clearly revealed. The super reforms were aimed at protecting super members by removing duplicate accounts and unnecessary insurance through the ceasing of default insurance cover for young members, inactive accounts and low balance accounts.
“The impact of this has allowed us greater clarity than ever before around how many Australians are insured and the amount of insurance held compared to their needs,” Rice Warner says.
“The default cover of typical superannuation funds does not meet the full insurance needs of many families as the median cover is significantly less than the income replacement level required for death cover and total and permanent disability cover.”
Rice Warner says the median default cover of superannuation funds meets approximately 65- 70% of basic level death cover needs for average households but the proportion is must lower for families with children.
Since June 2018 the total sum insured across all distribution channels has decreased by 17% and 19% for death and total and permanent disability (TPD) cover respectively.
Rice Warner says this is a significant reduction and is driven mostly by the drop in group insurance inside superannuation, which has seen a 27% drop in sum insured for death and 29% for TPD.
EGM Insurance Jenni Baxter says the research has highlighted the need for the life industry to raise awareness of the need to have adequate insurance.
“It’s really about trying to raise awareness and engagement,” Ms Baxter told insuranceNEWS.com.au. “A lot of individuals don’t like to think about what happens if [they] die or what happens if [they are] unable to work, and therefore don’t take out any insurance or evaluate what their needs are.”