Rice Warner says life insurance should remain an integral part of the superannuation system, despite calls from various quarters for its removal.

“We believe it would be possible to design insurance cover that is closer to the financial needs of members,” the actuary says in a discussion paper.

“Generally, insurance needs grow with the number of dependants in a family.”

Rice Warner says super funds could design group life policies around the characteristics of members based on age and family needs.

Using existing data, funds could shift the default sum insured to one based on needs – all without changing the premium or obtaining additional information from members.

“We would simply assess the amount of the claim based on the dependants at the time of death,” the actuary says.

Rice Warner says its research shows the average default cover for a 20-year-old is $120,000, dropping to $84,000 by the time they are 50.

Its proposed default cover for a single 20-year-old would be $42,000, rising to $681,000 if married with two children. The 50-year-old default cover would be $124,000.

The super industry has responded to some of these issues, with Cbus to begin a crackdown on young people paying unnecessary premiums.

But premium reductions will not happen overnight, Rice Warner says.

“Progress is unlikely to be quick on this front as typical insurance contracts are for three years. Funds will likely have to wait until they can renegotiate.”

Rice Warner says insurers and funds will face pressure from governments and media to make changes sooner. Financial Services Minister Kelly O’Dwyer has already asked the Australian Prudential Regulation Authority to examine mechanisms for fund members to opt-out of automatic cover.