IFSA insurance research - summary findings
The main findings of the research are summarised below.
Full Report
(a) Wide Variations in Insurance Premiums
Insurance premiums vary widely across funds, particularly industry funds. For a member of a particular age, occupation, gender and smoking status, the highest and lowest premiums differ by a factor of between 5 and 22. That is, a member in the fund with the highest premium is paying up to 22 times the premium they could be paying in another fund for the same insurance cover.
For example, the factor is almost 7 for a male white-collar worker aged 40 (next birthday). Across the 52 funds surveyed, the lowest premium for this person is $55 per $100,000 of cover compared with the highest premium of $367 – a difference of $312. To put this in context, management fees of 1% on a $50,000 account balance are $500. Clearly, the cost of insurance can have a significant bearing on a person’s retirement savings.
(b) Premiums Vary According to Type of Fund
The premiums charged by different types of funds vary considerably (Appendix 2).
Retail corporate funds servicing large and medium-sized employer plans generally provide the lowest cost insurance for young white-collar workers (below age 40), particularly as the premiums rarely include adviser commission (see graph below for median annual premiums).
White Collar – Median Premiums (Per $100,000 Death & TPD Cover) – Age 30
We separate industry funds into two groups - specific industry and multi-industry funds – because the premiums charged by each vary greatly. Generally, specific-industry funds cost less, but the spread of premiums for blue-collar workers is greater, as the funds represent a wide spread of industries.
Specific-industry funds generally provide low cost insurance for both white and blue-collar workers. In particular, their premiums are generally lower than retail funds for blue-collar workers of all ages, especially older members.
Multi-industry funds generally provide insurance at a higher cost than specific-industry funds. This is also the case when compared with retail funds, except at older ages (above age 40), where they offer better value (see graph below for median annual premiums).
Blue Collar – Median Premiums (Per $100,000 Death & TPD Cover) – Age 50
Retail corporate funds servicing small employer plans generally provide lower cost insurance for white-collar workers than retail personal funds.
Retail personal funds generally provide lower cost insurance for young white-collar non-smokers than multi-industry funds.
(c) Automatic Cover
The automatic cover provided by retail corporate funds is generally sufficient for most members, requiring no medical evidence for a high level of cover.
Retail personal superannuation funds provide no cover without medical evidence.
Industry funds provide automatic cover for employer-sponsored members, but the level is significantly less than for retail corporate funds and is not an adequate level of cover for most members. Evidence of health is required in most personal divisions of industry funds.
This issue is critical for members transferring between different types of funds, as a member may have to undergo a process of underwriting to retain their previous level of cover, during which they may not be covered at all.
(d) Other Issues – Cross-Subsidies
There is a large element of cross-subsidisation in industry fund premiums. This occurs between males and females, young members and old members, and lower risk and higher risk occupations. The gender and occupation cross-subsidies are the result of industry funds generally basing their premiums on age only.
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