Insurers are seeing Australia’s life insurance problem reduce significantly over the last few years, but a new survey has found that levels of insurance are still half of what they should be.
Rice Warner Actuaries found as at June 2010, the overall level of underinsurance in life risk was at $669 billion, which compares favourably to $1,000 billion of underinsurance in 2005.
On an income replacement basis, the level of life underinsurance is $3,073 billion, while for total and permanent disability (TPD) it sits at $7,182 billion. Income protection underinsurance sits at $437 billion.
Managing director and head of strategy Michael Rice said these increasing levels of personal insurance have been driven by increasing default cover within superannuation, a greater focus on risk insurance by financial advisers, and the growing direct life insurance market.
Rice said the changes to the financial and life insurance market over the past six years has led to an increased focus on personal financial risks after the global financial crisis.
But Rice said that while the life underinsurance problem had lessened, the level of cover was still only half the amount it should be.
“Apart from individual detriment, underinsurance also comes at a substantial cost to the Government. Currently, the total cost to the Government of life underinsurance across Australia is calculated to be $140 million per year as publicly funded social security benefits fill the gap,” he said.
Rice suggested there were numerous options the Government could take to reduce the underinsurance problem.
These include removing stamp duty from policies, removing GST from TPD and income protection policies sold by general insurers, making the tax treatment equal for risk insurance inside and outside of superannuation, and implementing the ‘scaled advice’ model with a focus on risk insurance.
