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Opt-in reform may put 11% on premiums

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Premiums for insurance within superannuation could rise 11.1% due to proposed rule changes that will reduce the opportunity for cross-subsidisation by age, consultant Rice Warner says.

The estimate reflects a forecast 7.4% increase in death and total and permanent disability (TPD) premiums and a 20.4% rise in the price of income protection cover.

Some super fund members are expected to lose their cover when insurance becomes opt-in for young members and those with low balances and inactive accounts, resulting in higher premiums for the majority of members who remain.

Rice Warner says fund members aged 18-25 pay on average three times their “true premium” for death and TPD cover due to cross-subsidies.

“After federal budget changes have been implemented, the option to cross-subsidise will be reduced as younger members will be removed from the insured basis.

“Ultimately, this will increase premiums for the remaining insured members.”

Only about one-quarter of funds offer default income protection cover, with the total default opt-out premium dominated by a handful of funds.

Rice Warner says the extent of premium changes will vary considerably between funds and according to factors such as benefit design, demographics, and terms and conditions.

It says it supports the reforms’ objective to reduce the erosion of super balances for members who would shift to an opt-in basis.