Super funds need to assess whether the levels of insurance for its members are affordable and do not erode retirement balances, the Insurance in Superannuation Working Group (ISWG) says.

In a paper looking at the issues surrounding group life premiums, it recommends a standard approach to setting maximum premium levels for automatic cover.

The ISGW was formed by the Australian Institute of Super Trustees, the Association of Super Funds of Australia, the Financial Services Council, the Industry Funds Forum and Industry Super Australia.

Its paper, which will be followed later by another on issues involving group life, says funds should look at employer contributions, average weekly earnings, current account balance and the projected amount at retirement.

Factors such as whether a member is blue or white collar and works full-time or as a casual should also be factored into calculations.

The working group also calls for a standard definition of “inappropriately erode” to help members, trustees and insurers understand what the term means in practice.

This could be included in the Financial Services Council’s Life Insurance Code of Practice, which at present doesn’t apply to group life or super trustees. The code could use this definition as an objective measure of compliance.

The paper also proposes principles to help create levels of cover for different types of fund membership, as well as defined and consistent definitions across funds for when cover ceases and recommences.

Another issue examined by the working group involves fund members who hold multiple policies in different funds. The paper recommends the funds consider better member communication about the issue.

ISWG Chairman Jim Minto says too many people have multiple super accounts and while insurance benefits are valuable to members, there is more rapid erosion of retirement savings.

“Ideally people would consolidate their insurances and avoid this, but we must provide solutions now to address the reality of multiple, automatically provided life insurance arrangements,” he said.

The paper asks for submissions from stakeholders, with the feedback helping to shape an enforceable code of practice and good practice guidance for trustees, which will be published later this year.

Submissions can be sent to ISWG-PMO@kpmg.com.au by April 7.