Superannuation funds can play a role in dealing with the underinsurance problem, AIA Australia CEO Damien Green says.

But he says there has to be a partnership between the group life insurer and the trustees of the superannuation funds to tackle the problem jointly.

This is not only about attracting more members to take out life insurance, but also dealing with adequate levels of cover which is a decision for trustees, Mr Green told the Financial Services Council Life Insurance Conference in Sydney last week.

REST Superannuation COO Paul Sayer agrees this is an issue for some members, but says over-insurance is another problem area.

He says REST did look at this issue when it put its insurance contract out for tender.

“We have a number of young members working part-time and they receive insurance cover which in the past was about $200,000,” he said speaking at the same session.

“We wanted set-and-forget insurance, so the young member now has less than $50,000 coverage.”

If they are still a member at 40, their cover rises to $200,000 but then drops down to less than $50,000 by the time the member reaches 60, reflecting their financial liabilities.

Mr Sayer says altering the insurance offering to its members, and encouraging them to take additional insurance such as income protection, has seen the numbers grow dramatically.

In the past only 620,000 of the fund’s 1.9 million members took out life insurance through the fund.

Now this has risen to 935,000 members with more continuing to join the group insurance policy, he says.

Mr Green says AIA recently undertook a trial with a fund it provides insurance to where 240,000 members were approached and 8100 subsequently joined the group scheme. He says this was a conversion ration of 3.4%.

But while more members are joining group insurance schemes, Mr Green says he is concerned a number of recent insurance tenders were driven by price.

“Given the volumes of group insurance, there is an opportunity to reduce value, but this is more about a longer-term partnership between the insurers and the fund,” he said. “The worrying trend is that the focus is on margins.”