Superannuation fund members receiving default insurance that they do not need are in the minority reinforcing that insurance within superannuation represents a key offering, according to Mercer.
Mercer has told the Productivity Commission (PC) inquiry into the Efficiency and Competitiveness of Superannuation that while the compulsory provision of insurance within superannuation is not perfect, it means that millions of Australians now have better death and disability insurance than they would have had if there had been no insurance cover within super.
“Despite the extensive member coverage provided through superannuation funds, underinsurance remains a much bigger problem than over insurance,” the Mercer submission said. “However, we acknowledge that there is a minority of members, particularly younger members, who are provided with default cover they may not need.”
It said death and disability cover within super had a number of advantages over death and disability cover provided outside super, including:
- Cost: the group risk nature of insurance, together with the fact that most super fund members are actively employed, means that premium rates are generally much lower than premium rates members could obtain outside super as an individual; and
- Benefit: generous automatic cover levels generally apply within super, whereas individual insurance is generally subject to underwriting requirements or cover exclusions.
“The fact that insurance cover within super is on an opt-out basis rather than an opt-in basis facilitates these attractive premium rates and automatic cover levels,” the Mercer submission said. “Therefore, we believe any approach to default fund selection should recognise the value of insurance and take into account the contrasting prices and benefits provided by insurance from different MySuper products, notwithstanding the fact that this makes comparisons more difficult.”
“We recognise there are significant differences in the prices and types of insurance provided by different MySuper products,” it said. “However, the exclusion of this significant benefit from the evaluation of default MySuper products would represent a major omission. The resulting outcome could be that some default members do not have death and disability insurance where they need it, while others are paying premiums that are higher.”
