Tailoring group life insurance to members’ family needs may help tackle underinsurance in the sector, according to Rice Warner.

“The biggest challenge for super funds in providing appropriate and adequate life, total and permanent disability and income protection cover is the insurance needs of members vary significantly depending upon the composition of their families,” the actuary says.

“This could be addressed by funds differentiating members’ default cover by marital status and number of dependent children, instead of just by age.”

Rice Warner says super funds should include families’ details in their member databases, to help define cover levels.

“The level of default cover held by young, single members is likely to be higher than their needs, given most have no children.

“In contrast, the insurance needs of members tend to increase with age as they form families and accumulate debt. Yet the typical default cover meets only about 30% of the basic life insurance needs for families with children.”

Rice Warner also says super funds should maintain cover for older members, rather than let it tail off as they near retirement age.

“Encourage members to report to their super funds life events such as having children, taking a home loan and older children becoming financially independent. This information would assist funds to better align default cover to their members’ circumstances.

“The persistent problem of underinsurance among fund members presents funds with continuing opportunities through enhanced engagement and technological innovation.”