Insurance in super should be redesigned

Superannuation funds could address potential affordability concerns by designing insurance products that are closer to the financial needs of members, Rice Warner believes.

The research house’s latest analysis said life insurance should remain an integral part of the super system and could be redesigned to fit more around member characteristics such as age and family type.

“…we could shift the default sum insured to one’s based on needs – all without changing the premium or getting any additional information from members. Generally, insurance needs grow with the number of dependants in a family.” the analysis said.

“We would simply assess the amount of the claim based on the dependants at the time of death.”

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Rice Warner made these suggestions in response to criticisms surrounding life insurance and claims, members having too much insurance, over-insurance of young members, and expensive cover at older ages that eroded retirement balances.

It noted that while the key industry bodies formed the Insurance in Superannuation Working Group (ISWG) that set out to address those issues and had set out the objective of insurance in super, outside the life insurance and super industries there was not the same support.

“The Financial System Inquiry recommended that there be an overall objective for the superannuation system, and it also listed some ancillary objectives. Everything made sense – but there was nothing about insurance!” the analysis said.

While Rice Warner said the industry had begun to respond to the questions that were being raised with funds looking at developing practical solutions to the problems, it said progress was unlikely to be quick as typical insurance contracts were for three years.

“Funds will likely have to wait until they can renegotiate. By then, we expect that any further pressure applied either via government or the media will already have prompted change without the need for further legislation,” it said.