The regulatory framework for group life insurance must address industry changes, according to the Actuaries Institute.

In a submission to the Productivity Commission’s review of superannuation, the institute cites premiums and underinsurance as issues affecting regulation.

“The fact premiums for some of the largest funds are now the size of the total business for a small or medium-sized life insurance company… represents a capacity challenge for the life industry, and new models may need to be developed to deal with it,” it says.

Underinsurance in some super funds has been a long-term problem, but providing extra cover amid rising premiums has posed a dilemma for trustees.

The institute adds some members are overinsured, and trustees must consider both problems when deciding levels of cover.

“Members should be encouraged to effect appropriate levels of insurance cover,” the submission says. “While premiums reduce their age retirements benefits, the problems caused by death and disability are usually more severe.”

The institute suggests cover can be reduced when dependants no longer need it, to aid members’ retirement benefits.

But it notes inadequate cover cannot be made up after a death or disability claim.

The institute says regulators can gain a better picture of the group life industry’s state by making the loss ratio of cover more readily available. It says benchmarks are available for the type of cover provided within super, but the regulator does not publish the ratios independently.

“The data should be readily available within super funds and insurers, but it is not currently collected or published by the Australian Prudential Regulation Authority (APRA).

“APRA does already collect information at selected member ages regarding the type and amount of ‘default’ or ‘automatic’ cover and the premiums charged.

“However, benefit designs, terms and conditions vary significantly from fund to fund, as do the membership profiles, and it can be misleading to compare funds using this data.”