Over 650,000 members lose insurance from early super
More than 650,000 super fund members are projected to lose their life insurance as a result of the government’s early release scheme, new research has found.
Research house DEXX&R’s Market Projections Report projected total group insurance premiums for the year to fall by $226 million by December 2020, as Australians continued to withdraw funds from their super accounts.
The group said around 660,000 fund members were predicted to lose their insurance cover as a result of their account balance falling below the threshold for premiums to continue to be deducted.
“It will be several years before many of these members again have a balance at a level where they are eligible to receive default insurance cover,” DEXX&R said.
As a result, growth in the group insurance market was expected to be flat for the foreseeable future, with lump sum in-force premiums growing by just 1.8 per cent per year until 2029. New annual premiums were projected to fall by 11 per cent per year to $284 million by December 2029, down from $860 million in December 2019.
“The lower projected lower growth rates for both new and in-force group premiums reflect the impact of the COVID-19 super early release scheme, higher unemployment leading to a reduction of in the number active accounts eligible for automatic cover on an opt-out basis, and slower growth in account balances as the result of underemployment with little or no growth in wages and salaries over the next five years,” DEXX&R stated.
Moreover, the assumptions in the group’s modelling included the legislated increases in the super guarantee, which the government flagged this week may not go ahead.
The report stated that if the SG was not increased, growth in the group insurance market would be “further reduced”.
Meanwhile, the group said the impact of the crisis on the retail risk market would be “minimal”, with “a small impact” arising from clients taking out benefit suspensions while their working hours were impacted by lockdown periods, and further lapses expected to flow through as unemployment rose in the years following the crisis.
“Existing pre-COVID issues faced by insurers are expected to have a greater impact on subdued growth in new and in-force [retail] premiums over the next five years. These issues include a fall in number of advisers actively recommending risk products,” the report stated.
DEXX&R projected in-force term life and TPD premiums in the retail channel to grow by 1.5 per cent per year to December 2029, while trauma in-force premiums were expected to grow by 1.5 per cent per year and disability income in-force premiums would grow by 2.6 per cent per year.
