The structure of default insurance within MySuper products is unfair for younger members who are essentially subsidising older people, according to Willis Towers Watson.

“Significant cross-subsidies between members continue to persist in insurance design, particularly with the young subsidising the old,” it says.

It says this is most obvious in superannuation funds that offer default salary continuance insurance (SCI), citing an analysis of 54 funds.

The analysis shows that of 27 funds offering the cover, 10 offer a fixed SCI benefit by age and a fixed SCI cost by age.

This basically means a 25-year-old member and a 55-year-old counterpart get the same cover at the same cost.

“Not only is this design unfair to younger members, it leaves the fund very vulnerable to changes in age distribution,” the advisory group says.

“A one-year increase in the overall average age for such a fund can lead to a 10% premium increase, even if claims experience has been in line with expectations.”

MySuper products are required to include default death and total and permanent disability (TPD) cover.

While SCI is not compulsory, it forms part of the insurance design for 50% of funds.

“The analysis shows that the high end of insurance costs has continued to increase, but the lower end is largely unchanged,” Willis Towers Watson says.

“Not surprisingly, the funds offering default SCI as well as death and TPD cover tend to have higher costs and the funds that have moved to stepped insurance costs by age tend to have the highest costs at the older ages.”