ASIC: default insurance in super not always value for money

A report by the Australian Securities and Investments Commission (ASIC) has found that some superannuation fund members who are put into the default insurance system will receive less than 80 cents in claims payout per dollar of premium paid. The report offers up some areas of improvement on value for money in insurance within superannuation.

The report, Default insurance in superannuation: Member value for money, looked at publicly available data on default insurance cover offered by 20 MySuper products, plus deeper data obtained from 11 large superannuation trustees across six years.

The report says there is wide variations in the levels of default cover offered, with some large MySuper products offering over 20 times the level of cover than others. There was also a wide variation in premiums being charged to members, based on cover levels at the default setting, the average risk level of the person, and how generous insurance terms and conditions were.

Fund members with default insurance would typically be paid up to 79 cents in claims for every dollar they paid in premiums over the six years to 30 June 2019. Value for money varied significantly depending on the age of the member and the restrictions of the terms and conditions. ASIC’s report said this raises questions regarding how appropriate default insurance design and fairness between member groups was and showed that trustees didn’t always understand default insurance design very well. Trustees with complex insurance designs and product structures faced the most hurdles in understanding their products and data.