Around 5,000 Australians a year have died without life insurance cover since reforms to default superannuation insurance arrangements came into effect in 2019, new ASFA research shows. These individuals’ families are collectively missing out on approximately $670 million in death benefits each year.
The research, launched today at ASFA’s Spotlight on Insurance forum in Sydney, also finds that approximately 11,000 individuals each year are missing out on around $1.5 billion in total and permanent disability (TPD) benefits as a direct consequence of the same legislative changes.
The figures reflect the impact of two pieces of legislation introduced in 2019: the Protecting Your Super Package (PYS) and the Putting Members’ Interests First (PMIF) Act.
The laws were designed to stop insurance premiums eroding the accounts of disengaged super members. Under PYS, funds were required to cancel insurance on accounts that had been inactive for 16 months. Under PMIF, default insurance cover was removed for members under 25 and for anyone with an account balance below $6,000. Around five million individual accounts lost insurance cover as a result.
Unintended consequences
The intent was to address a genuine problem at the time: unwanted multiple accounts meant many members were paying insurance premiums across several funds for cover they did not need, and could not claim simultaneously. But ASFA’s research shows the legislation’s unintended consequences mean Australians are losing out.
ASFA’s Chief Policy and Advocacy Officer, James Koval, said the research points to a significant mismatch between current policy settings and the present-day reality for Australians with super.
“I really feel for the families who’ve been caught by some of the unintended consequences of the PYS and PMIF legislation. These laws were meant to protect balances, and that intent was sound. But the mechanism was too blunt. Insurance was switched off by default, often leaving people unaware it had happened.
“Our research now shows the scale of that consequence. The problem these laws were designed to solve, unwanted multiple accounts and balance erosion, has been largely addressed through other means. The data makes a strong case for revisiting whether the current settings are still doing more good than harm,” Mr Koval said.
Those affected include young workers under 25, self-employed people with inactive accounts, and low-balance earners who have not yet reached the $6,000 threshold for default cover to apply. As ASFA’s research notes, these groups are no less exposed to workplace injuries, motor vehicle accidents or mental illness than the broader workforce. The reduction in claims after 2019 confirms that those who lost cover were people who, in many cases, actually needed it.
Insurance through super currently covers 9.3 million Australians for death benefits and 8.2 million for TPD. While coverage has stabilised in recent years, around 12 million Australians receive employer super contributions, indicating a significant gap between those contributing and those covered.
The research is clear on the quality of these insurance products: claims-paid ratios exceed 100 per cent for group TPD and disability income insurance, and claim admittance rates are in the mid- to high-90 per cent range.
The research sets out a series of policy recommendations. These include:
- Extending opt-out insurance to all members aged 21 and over rather than 25;
- Applying default cover to new full-time employees from day one rather than waiting for a $6,000 account balance to accumulate;
- Replacing automatic cancellation of cover on inactive accounts with an enhanced opt-out process requiring members to make an active and informed decision.
Spotlight on Insurance is ASFA’s annual forum dedicated to group insurance within superannuation.
Held at the Sheraton Grand Sydney Hyde Park on 5 March, this year’s event brought together fund executives, insurers, regulators and industry specialists for a full-day program examining claims frameworks, mental health and TPD, regulatory developments, and member outcomes.
Ends
For further information, please contact:
ASFA media team
0451 949 300
mediaunit@superannuation.asn.au
About the Association of Superannuation Funds of Australia (ASFA)
ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry, and the only industry body that represents all parts of the APRA-regulated system.
Our more than 100 members include retail, industry, corporate and public sector funds and their service providers. For over sixty years, ASFA has been the voice of super, advocating for a dignified retirement for all Australians. Through research, advocacy and collaboration, ASFA promotes efficiency, sustainability and trust in Australia’s world-class retirement income system.
