The issue of life underinsurance has evolved from people being without cover to people lacking sufficient cover, according to AIA Australia GM Life Insurance Damian Mu.

“We do have an improving trend in underinsurance,” he told the Financial Services Council conference in Brisbane last week.

“Looking at adequacy, do people have enough cover? The answer usually is no. But we are seeing more people covered, more features and benefits in policies, so we should not be surprised to see more claims coming through.”

Mr Mu says the industry must address pricing, especially in the group segment.

“Super is an important vehicle for life cover, but there are challenges with data and therefore how we price the risk,” he said.

CommInsure GM Retail Advice Tim Browne says affordability is a factor in underinsurance.

“During the past 12 months we have seen increasing lapse rates… we surveyed 1200 lapse clients and found affordability is the primary driver,” he told the conference.

Mr Browne says one possible solution is a return to level premiums, rather than the stepped model Australia uses.

Insurers can consider the way consumers perceive life insurance, particularly when it comes to renewals. Simple steps such as making renewal notices look less like bills could help.

“I think we can make a big impact by explaining clauses and looking at how much the consumer can afford to pay,” Mr Browne said.

Mr Mu says clients are more inclined to maintain car and home cover than life premiums when there is pressure on household budgets.

“Consumers don’t value life insurance. We need to get back to the systemic issues and educate consumers through financial literacy about the value of life insurance.

“This includes making sure the next generation coming through understands life insurance and its role.”