Insurers and super funds will need to start making tailored insurance offers to customers to combat the underinsurance problem, rather than continuing the "blanket approach" evident in default cover.
This is one of the main points flowing from Rice Warner's 'Underinsurance in Australia Report 2012', which found the underinsurance gap is reducing but that key issues are yet to be properly addressed.
While default insurance provided through super – which is responsible for much of the progress and growth made by the insurance industry – proved to be extremely successful in providing cheap cover, the so-called "blanket approach" could only ever be part of the solution, according to the report.
It said although the underinsurance gap is reducing, the median level of life insurance still meets only 66 per cent of customers' basic needs and covers 41 per cent of what is considered an adequate amount.
Rice Warner predicts both insurers and superannuation funds need to switch to making tailored insurance offers to customers.
"Apart from individual detriment, underinsurance also comes at a substantial cost to the government," said Rice Warner principal Richard Weatherhead.
"Currently the total cost to the Government of life underinsurance across Australia is calculated to be $76 million per year, as publically-funded social security benefits fill the gap.
"Meanwhile, the situation regarding disability underinsurance is even more serious, costing the Government nearly $1.5 billion per year," Weatherhead added.
