Insurance might be the defining differentiator for a superannuation fund's MySuper product, according to Chant West's head of research Ian Fryer.
Fryer said that while asset allocation and investment philosophy had a huge impact on the performance of super funds, insurance was visible and there was a lot of scope to customise cover under MySuper rules.
"One of the main areas of differentiation could be this ability to vary cover and how much cover people are going to have," he said.
The wide range of default and automatic acceptance limits (AALs) that was already apparent in the industry could be a main differentiator, he said.
"Some funds are providing very low amounts of default cover, some funds are providing reasonable amounts, some funds are allowing you to dial up to $1.5 million within 60 to 90 days of joining," he said.
Fryer said the ideal insurance structure would include a reasonable level of default cover, but not too much that a large proportion of members were over-insured. Members should also have the ability to dial-up to a reasonable AAL, he said.
Fryer said 26 of the top 30 industry funds allowed members to dial-up within 60 or 90 days of joining to get higher levels of insurance cover.
He said ten of the top 30 white collar industry fund's AAL cover had some "shape" to it and catered for specific demographics, but very few had reasonable cover for members over 50, which was driven by a focus on cost and not members' needs.
Life events cover was critical, Fryer said, and while 18 of the top 30 funds allowed access to life events cover, one or two units was the general limit on increases. He said seven of the 18 allowed a 25 per cent increase in fixed cover up to $1.5 million, which was more reasonable.
Less than half the top funds had default income protection cover, with the median default for an industry fund coming in at $2,000, while two-thirds had AAL on income protection of $8,000.
Fryer said the real task was in communicating the cover to members and getting government to promote insurance through super.
Fryer was speaking at the AIA Group Insurance Summit in Sydney.
