Despite some progress having been made in the past decade, Australia continues to be confronted by a significant under-insurance problem, according to actuarial consultancy, Rice Warner.
Rice Warner principal, Michael Rice, has used his company’s website to publish an analysis of the under-insurance situation, but points to the costs to Government still being significant.
According to the analysis, in terms of the life underinsurance category, Rice Warner estimates the total cost to government to be $57 million per year; while Total and Permanent Disability (TPD) underinsurance is calculated to be $1.258 billion per year.
It said that for income protection, underinsurance was estimated at $260 million per year.
Rice pointed to the fact that his firm had first reported on the issue in May, 2005 and that while, 10 years later, there had been some closing of the gap thanks to mandatory superannuation and improved group life insurance policies, the problem of underinsured member lives persisted.
He said this presented continued opportunities for technological innovation, enhanced member engagement, some new thinking, and further investment by funds.
Pointing to what had been done by superannuation funds, Rice said they had tried to target the benefits of better recognising that:
- Default levels were too low for too long.
- Single people generally do not need as much life cover as families.
- Buying a house and having a child are the key times when members are interested in life insurance.
- Many young people have a higher need for disability cover than death cover.
- The amount of cover should fall for many older people as they pay off their mortgages and have accumulated savings (family home and superannuation).
“However, funds can only use proxies such as age and general population averages on insurance needs as they don’t know the personal circumstances of their members,” Rice wrote.
He said that thanks to mandatory superannuation, life insurance was booming in Australia with some 50 per cent of the $14 billion of annual premiums in the life industry now collected through superannuation.
“Some argue that this growth in life insurance is starting to take too much away from members’ retirement savings; others point out that life insurance within superannuation is cost effective and fills an important social need,” he wrote.
“The latter argument is strong, provided the premiums provide the right amount of cover.”
