The change to default group insurance put forward by the Federal Budget could result in a 50 per cent reduction in overall insurance cover inside super and a 42 per cent decrease in the amount of group life premiums collected, KPMG has warned.
A research paper by the firm found that the proposed measure to remove default cover for members with balances under $6,000 would result in a 45 per cent reduction in group life cover. The removal of default cover for members under 25 would see an 18 per cent reduction, while for inactive accounts there would be a 46 per cent decrease.
KPMG also warned that consumers could suffer a 26 per cent rise in the cost of premiums. As a result, retirement outcomes for members could worsen with retirement on benefits on average eroding from 6.2 to 7.35 per cent across all segments.
The firm cautioned that while members with multiple accounts would likely be better off regardless of premium increases, those losing automatic cover would lose out most.
“Members who need cover but fail to opt in are likely to be those that are worse off, as they may be unaware that cover has been removed unless communication is appropriately effective and simple to understand to combat the well-known apathy issue,” the report said.
“Importantly, some of these members may not be financially sophisticated enough to understand they need the cover in order to opt in.”