Low levels of financial literacy and engagement among super fund members are leaving them at risk of losing their insurance cover.
Under Protecting Your Super legislation, a member could lose their default insurance cover if they don’t make a contribution to their super for 16 months while Putting Members’ Interest First legislation made it optional for members who were under 25 and had less than $6,000 in their fund.
A problem is there are low levels of financial literacy with few members, especially younger ones, understanding options such as total and permanent disability (TPD) insurance that made them less likely to opt in to receive it.
MLC Life Insurance, head of group product and proposition, Alison Bodinnar, said: “Even the everyday Australian who thinks they’re reasonably financially literate and engage with multiple financial products still can’t explain or understand really basic concepts around insurance inside super. Take, for example, TPD — there is little understanding on what it means and how it forms part of life insurance inside super.
“And it’s TPD cover that is so critically important to these groups of members because if they find themselves in a situation where they can’t work again and don’t have cover, but still have many years ahead of them, they won’t have any income and very little super to rely on for the rest of their lives,” she told the Australian Institute of Superannuation Trustees (AIST).
For super funds that are looking to improve their member engagement, Bodinnar said there are three things they should remember: consider the channel used to contact them; reconsider how they describe concepts; and design products that suit the member experience.
Unlike older members, younger members are less likely to engage with communication via mail and more so on social media in bite-sized chunks. They are also likely to feel overwhelmed with too much industry jargon and disengage from the process so are recommended to focus communication specifically on insurance.
Regarding product design and acting in members’ best financial interests, Bodinnar said: “The amount of default cover provided to members is often different based on age. And when funds are thinking about the way in which investment options and default designs are manufactured or created, I think it’s definitely worthwhile thinking about insurance at the same time.”