Insurance premium increases continue to be a feature of the superannuation landscape. Whilst there are a range of default sums insured and different premium rates across funds, it is evident that some commentators and superannuation funds alike are beginning to question the value of providing default insurance benefits through a superannuation fund or through non-superannuation policies at the request of the individual member.
SuperRatings most recent research shows that default levels of Death and Total and Permanent Disablement (“TPD”) cover have increased on average by 10% over the past four years. Overlayed with the increase in cover is the substantial rise in premiums over the last twelve months, with the median increase being approximately 50.5%.
Taking personal tax considerations aside, affordability can also be measured by the full-time adult weekly total earnings of $1,449.30 ($75,364 p.a. based upon the latest Australian Bureau of Statistics (“ABS”) statistics. Based upon SuperRatings analysis, the average Death and TPD insurance annual premium of $239 for a 40 year old and $243 for a 45 year old equates to approximately 3.3% and 3.4% (respectively) of the Superannuation Guarantee (“SG”) contribution for the average Australian worker, resulting in a net contribution to superannuation of more than 95% of the SG contribution into a members account. This suggests that default insurance continues to be affordable for the average superannuation fund member.
“Whilst some form of cross-subsidisation is a key tenet of any group insurance policy, we believe funds can do more to individually tailor insurance premiums across varying gender and occupational categories, rather than utilising a range of blended rates for all members. This will ensure any future premium increases (or potentially reductions) can be accurately targeted at those segments of a fund that claim more frequently”.
In conjunction with better communication, SuperRatings suggests that funds should consider the possibility of altering insurance designs in order to mitigate against further premium increases going forward. SuperRatings believes positive steps such as greater reliance on Income Protection, rather than lump sum TPD payments is appropriate. Additionally, funds must ensure that any changes to terms and conditions are not unnecessarily onerous such that they can result in the potential for genuine claims to be declined.
