Australia Faces Significant Disability Underinsurance Problem

The median level of disability cover held by Australians represents just 15% of a family’s needs, a study into underinsurance has revealed.

Rice Warner’s latest ‘Underinsurance in Australia’ report found that the median level of TPD cover in Australia is 14% of that needed to fully maintain the standard of living of the family. Similarly, the median level of income protection cover is just 16% of actual needs.

These figures are significantly lower than the level of life insurance cover held by the working age population:

  • 62% of Australians hold enough cover to support basic family needs
  • 42% hold a sufficient amount to fully maintain the standard of living of the remaining family members

Co-author of the report, Thierry Bareau, told riskinfo there were a number of possible reasons behind the lack of take-up of disability cover:

… the life insurance industry needs to focus on a deeper understanding of individual clients’ insurance needs

“To start with, life insurance is often easier to take out. Income protection often requires more underwriting, and some people may be deterred by the medicals,” Mr Bareau said.

“Life cover is also offered as part of nearly every super fund which means people are receiving a level of cover automatically, without having to take any direct action. And while many super funds now also include TPD cover as a default offer, the levels are not always sufficient.

“Another factor is the increased activity in the direct market, which is largely focused on death only covers.”

According to Rice Warner’s Richard Weatherhead, the figures demonstrate that the life insurance industry needs to focus on a deeper understanding of individual clients’ insurance needs, so that insurance offers can be targeted at those with the greatest need, rather than on raising levels of cover across the board.

“This is particularly the case in relation to disability covers, notwithstanding the government’s new Disability Care Scheme (DCS). The DCS complements, rather than replaces, the need for life insurance cover,” he said.

For more on the findings from Rice Warner’s Underinsurance in Australia report, see: 10 x Income Not Enough.


  • Jeremy Wright

    We found a lack of interest from the Life Companies to look at the program we had developed, which calculates the exact levels of Income Protection, Life cover, TPD and Trauma each person needs based on their assets, liabilities, income and all personal / investment expenses.

    We have a massive take up rate of HIGHER NEW BUSINESS PREMIUM when clients do a full review, which along with retention, is the life blood of the Industry, yet not one Company would commit to looking further at this opportunity to improve the retail Life Companies future profitability.

    Under Insurance is a big issue and it is going to get worse in the retail Life area until the Life Companies realise that people today are not interested and will not tolerate inefficient, time consuming and confusing processes and that they now know that cancelling is a very easy way to solve that problem.

  • Matthew

    Well this is going to be the case as FOFA continues to come alive, Bill Shorten and his crew of educated derelict followers are to blame for this.

    And we are going to see more and more as Financial Planning business (small ones) continue to fight to survive the cost of compliance and silly little rules and over regulation.

    Insurance in super is just the start it should be compulsory, of I do believe that Industry funds are exempt for some reason oh yes they get paid an admin fee from the insurance company to the same value as commission well done AIA

    The introduction of AFSL has done nothing for the industry its actually destroyed the industry its increased the cost of compliance and simply running a business, those in the industry who do not turn over a minimum dealer group fee of 30k a year will soon be on the dole.

    Consumers on the other hand have had enough of the Likes of insurance companies not paying claims, its not the advisers in the industry its the likes of sorry no claim is payable because Elvis Presley was not in the room at the time.

    This should all be simple but its never simple, with FOS now saying that ambiguous definitions no longer go in favour of the insured FOS have created a massive industry issue, that’s absurd Alison Maynard. FOS not accountable to The AAT and only to that of the ASIC why?, FOS has become a waste of time with record numbers of complaints about it and its decisions, its time the ASIC cleaned out FOS of it holier than now people and started again. Record complaints record rejections record waiting times.

    The consumer has had enough now, you will see bail outs for insurance companies who have squandered money in the good times and not saved enough to survive the bad times.

    Bill Shorten this is a direct result of your stupid FOFA not anything else.

    Advisers some of those who have had agreements for 30 years, agreements you decided are not valid, who do you think you are ? you as in the Government cant tell the industry how it gets paid, that’s not legal, the second oldest industry in the world, FOFA destroyed the industry in the UK and all we have adopted is the same as they did IT DID NOT WORK.

    Joe Hockey what are you doing about it? you promised to abolish FOFA if you got in, I supported your election campaign and volunteered my time to help you. Great thanks I get for helping you out.

    I saw the commbank tell a client the other day “Yes we set up a loan for $300,000.00 with a full redraw facility up to that amount. Now 6 months latter we see you made payments of $200,000.00 we have decided your redraw facility is reduced to $200,000.00, if you don’t like it go to FOS we will no longer discuss the matter with you this is our final decision”

    How about that ASIC this person had set the loan up for a specific purpose the COMMBANK agreed to the facility and then after settlement withdrew the facility for no reason at all.

    Now that small business will be in breach of a contract they signed after Commbank approved and settled. That’s just not cricket but with FOS it takes 2 years to get a decision to late FOS to late ASIC.

  • Insurance Manager

    Under insurance is an important issue to address if the Australian Life Insurance Industry wants to grow however before we can grow we have to survive. There is something much more life threatening (pardon the pun) going on in our industry at this moment.


    Yes addressing under insurance and retention strategies will be a great if we survive the next 3-5 years and our reinsurers don’t continue packing up and going home. Rice Warner and other researchers would add real value to our industry by focusing on the crisis that could literally finish us within 5 years.

  • Technical View

    Insurance Manager, to whom are you referring when saying “reinsurers don’t continue packing up and going home”. Where is your evidence for a continuing trend of reinsurers packing up and going home? Sure, Gerling left the market over a decade ago, but there have be none since. In fact, the opposite is true as we have had Scor commence operations here in the last 5 years. While many have reported losses, none have even hinted at withdrawing..

    • Insurance Advocate

      I was recently at a presentation given by a major a Reinsurer and based on their own financials and information readily available regarding the other Reinsurers in the Australian market, the local industry stands to lose $1 billion this calendar year.

      Take that bit of information as you will but large multi national Reinsurers won’t continue to sustain hundreds of millions of dollars of losses in the Australian market.

      The insurance industry is at an impasse and significant change is required at levels through the distribution chain to ensure its future vialibity.

      • Another view

        The losses are likely to be extraordinary, given changes in reserving and claims forecasts. They’re not going to be sustaining large losses like that on an ongoing quarterly/yearly basis – but they will use it as leverage with insurers to adjust prices and reinsurance terms, and will likely be less flexible going forward on product enhancements and underwriting terms.