Based on the updated figures for the June 2020 quarter in the ATO’s SMSF Quarterly Statistical Report for September, the amount of money allocated to insurance policies by SMSFs fell from $114 million at June 2019 to $71 million at the end of June this year. This represents a 37.7 per cent decline.
Allocations to insurance policies by SMSFs have been declining over the past three financial years, dropping by more than half or 55 per cent from $157 million in the June 2017 quarter.
In terms of asset allocation, limited recourse borrowing arrangements and both residential and non-residential property were among the few asset classes to see an increase in value.
Limited recourse borrowing arrangements rose by 5.6 per cent from $50.1 billion at the end of the September 2019 quarter to $52.9 billion at the end of the September 2020 quarter.
Australian non-residential real property jumped from $71.1 billion to $75.1 billion, while residential property increased from $37.9 billion to $40.1 billion.
Overseas residential property, on the other hand, fell from $324 million to $281 million, while overseas non-residential property dropped from $138 million to $119 million.
Listed shares, cash, debt securities, listed and unlisted trusts and other managed investments all decreased in value.
Overall, total net Australian and overseas assets held in SMSFs fell from $727.9 billion to $698.7 billion at the end of the September quarter this year.
There isn’t a great surprise given more advisers from large licensees are exiting the SMSF space because it is too hard with the gap being filled by unlicensed accountants. In addition less advisers are doing risk.
Declining insurance cover is not unique to SMSFs. It is happening everywhere. There are two main causes.
One is the huge increase in premiums resulting from a blowout in mental health claims. The other is reduced access to affordable professional insurance advice, resulting from regulatory changes. Unfortunately good insurance cover is becoming a luxury item and an increasing proportion of the population will be reliant on welfare if things go wrong for them.