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Australians chronically underinsured – super can help boost insurance adequacy

At Watson Wyatt Australia, we recently looked into the area of insurance adequacy. It's widely reported that Australians are chronically under-insured in many areas, and we found that protecting their and their family's financial security in the event of death and disability is no exception.

Typically most Australian employees end up in the “default” super fund offered by their employer, have their super invested in the fund's default investment option, and have the fund’s default insurance cover which is unlikely to be appropriate for their needs – insurance cover defaults usually provide for only a low level of death and total permanent disability.

And because most employees do not bother to determine their insurance needs, they do not do anything to secure additional cover to fill in the gaps.

Many default insurance cover levels were set in place ten or more years ago, and have not been reviewed since.

So how can we improve death and disability cover? There are a range of options we’ve come up with, including:

• Earmark an increase in the Superannuation Guarantee rate to finance improved default insurance
• Employers could voluntarily decide to finance all or part of default insurance cover on top of the contribution made towards an employee’s retirement
• Provide a higher default insurance cover level through a soft compulsion approach, with the flexibility for employees to “opt out”, or opt down" to a lower level of cover so that employees can reduce their insurance should they not need the default cover.

Finally, we believe that a workplace-based education program that combines face-to-face communication with the ability for each employee to model the amount of insurance cover he or she requires is an important kick-start to achieving employee engagement, and ultimately, adequate insurance protection.

For further information on insurance adequacy, read our press release and report.