The financial services industry has been urged to address the issue of chronic under-insurance in Australia in circumstances where the level of group life insurance provided by most superannuation funds would not be adequate to pay out a mortgage.
The chief executive of Tower Group, Jim Minto said the life industry was facing a major challenge with respect to under-insurance in circumstances where there had been a 10-year deterioration in the level of insurance in Australia.
Minto said that Australian consumers needed to be educated to better understand the implications of being under-insured particularly in circumstances where there had been a huge increase in mortgage debt per household, higher credit card debt and large annual increases in medical costs.
“To sum this up, there is far more financial risk per family that is usually not recognised in the community or families,” he said. “This adds up to more uninsured risk and a potentially greater burden on our society as we deal with the consequences in future years.”
Minto said that the life industry was, in part, responsible for the problem because it had outsourced distribution to independent advisers and over-engineered many products so they were poorly understood by consumers.
He said the result was that the life industry was growing but the under-insurance gap was widening with an estimated 66 per cent of families not having enough cover to replace their income for more than a year.
