There has been a sharp decline in the number of Australians covered by group insurance through superannuation, according to a research report by the Association of Superannuation Funds of Australia (ASFA) which was released last month. ASFA’s research has identified a 36% decrease in the number of Australians insured for death benefits through superannuation and a similar reduction in the number of people insured against Total and Permanent Disability (TPD).

ASFA CEO, Ms Mary Delahunty, said, “We now face a situation where fewer Australians and their families are covered by group insurance through their superannuation.”

Reason

“Legislative constraints introduced in 2019 have created a situation where many Australians, including young people, are now without insurance cover, with the near complete lack of default TPD cover for those aged under 25 a concerning issue that may have broader ramifications for the welfare system,” said Ms Delahunty.

Key findings:

The Protecting Your Super (PYS) and Putting Members Interests First (PMIF) measures led to a substantial reduction in the number of lives insured through superannuation for death benefits. Between June 2018 and June 2023, there was a 36% decrease in the number of lives insured. There was a similar decline in the number covered for TPD. Fund members in aggregate paid less premiums, but for some individuals or their beneficiaries there was a substantial cost in terms of benefits foregone. Some tens of thousands of fund members do not have their super protected or their interests put first by the changes made by the two pieces of legislation.

The impact on the Australian community was that there were 5,000 sets of beneficiaries of death benefits who missed out on payments of A$665m ($436m) in aggregate in 2022-23. Without the PYS and PMIF changes there would have been an additional 11,000 individuals a year receiving around A$1.5bn in TPD benefits. APRA data also shows a large increase in the incidence of TPD claims. Claims related to mental health issues are likely to have played a significant role in this. Average TPD benefits equate to only a year or two or three of wage income. TPD claimants generally would benefit more from a return to paid employment than from receiving a lump sum payout.

Insurance cover is at much higher average levels when fund members engage with insurance. Regulatory requirements concerning the provision of personal financial advice currently can make such engagement challenging.

ASFA will be convening a dedicated policy working group to further examine the best ways to meet the ongoing insurance needs of all Australians, including young Australians.