Rice Warner's Jenni Baxter (Pic: Supplied)
Jenni Baxter (Pic: Supplied)

Australian superannuation funds have lifted their premiums by an average of 16 per cent for death and TPD since January, according to research by actuarial consultant Rice Warner.

Super members with income protection experienced even steeper premium rises averaging 28 percent, with some funds exceeding 50 per cent, prompted by more claims, new legislation and the impacts of Covid-19, said Rice Warner executive general manager insurance Jenni Baxter. Baxter will discuss insurance affordability at Investment Magazine’s Group Insurance Summit on August 18, get your delegate passes here.

“There’s been a number of reasons why premiums are going up. Even before the legislative changes happened, … APRA profit margins showed insurers were not meeting specific margins so we were already at a point in the cycle where group insurance premium rates needed to go up,’’ Baxter said.

“And then we’ve had the impacts of Protecting Your Super, which for the majority of funds has meant premium increases, and we’re obviously now experiencing Covid-19 impacts.’’

Baxter said further impacts of people losing insurance because of early withdrawal and mental disability claims are yet to be factored in.

“The main impact of insurance from Covid-19 is the link between employment and financial distress and disability claims. Insurers are trying to quantify those impacts and it’s a very challenging task,’’ she said.

“Overall premiums are going up fairly significantly and that will put pressure on affordability.”

She said premiums would vary by fund, as some employment sectors and geographic areas are being hit harder than others.

Revenues have also fallen since Putting Members Interest First laws were introduced in April with changes to opt in insurance for young members and those with balances below $6000.

Baxter said the insurance in super voluntary code’s affordability threshold, set at one per cent of members’ salary, was a helpful “stake in the ground” for the industry but most funds offering default Income Protection Insurance would struggle to be under one per cent

“A number of funds are at one per cent. The problem is the premium increases, in some cases double, will push some funds well above one per cent and trustees may become uncomfortable from an affordability point of view,’’ Baxter said.

“Undoubtedly we will need to see premiums coming back down at some stage. That maybe from waiting and effectively riding this wave and then seeing claims improving. If not, then trustees may have to look at reducing benefits.

“This is a very difficult balancing act for Trustees.”

If there was no improvement in claims experience by mid 2021, there may be more pressure on trustees to take action and this was more likely to be a reduction in cover rather than a significant change in terms and conditions, she said.

Despite this, group insurance through super funds still offers better value than individual insurance thanks to pooling of risk and efficient distribution.

“It just needs constant management and monitoring and tweaking. We’re not saying it doesn’t work anymore, ’’ she said.

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