AIA questions group cover opt-in
AIA warns an insurance in superannuation opt-in model for young people would provide minimal additional savings, but could have devastating implications in the event of injury or illness.
“It is simply not the case that young people don’t require cover, or that they work exclusively in casual or part-time employment,” Australia and New Zealand CEO Damien Mu said.
More than 1.4 million people aged under 25 would be left without life cover under the proposed reforms, while the opt-in rate is likely to be less than 10% even with extensive marketing campaigns, the insurer says.
“This is concerning because most young people are less likely to self-fund in the event of a serious and unexpected event given that, for many, their largest asset is their future income,” Mr Mu said.
Under proposed legislation, super fund members would be required to opt-in to insurance if they are under 25, the account has a balance below $6000 or the account has been inactive for 13 months.
The Government says the changes would better target default insurance and prevent inappropriate erosion of retirement savings caused by premiums.
Rice Warner research commissioned by AIA says the reforms could lift an individual’s retirement balance by $1400, or 0.27% over the course of their working life, assuming a 15% increase in premiums. The balance would rise by $4000 with no premium rate changes.
AIA says members with active but low-balance super accounts have insurance needs, with more than $75 million in claims paid to these members by the company last year.
It has also paid $84 million on 1200 claims for members under 25 since 2015, with the rate of income protection and total and permanent disability claims about the same for people aged 20 or 30.
AIA supports measures to prevent benefit erosion due to duplicate accounts, which it says could be addressed through measures in the Insurance in Superannuation Working Group Voluntary Code of Practice.