Australia’s underinsurance gap has started to reduce, according to an industry report.
The report, compiled by Rice Warner Actuaries, found that underinsurance had reduced by 33% since 2005, with the overall level of underinsurance as at June 2010 calculated as $669 billion.
On an income replacement basis, the level of underinsurance was highest for total and permanent disability ($7,182 billion), followed by life cover ($3,073 billion), the report said. Income protection underinsurance was recorded at a rate of $437 billion.
The rate of underinsurance is calculated by assessing the dollar figure required to meet the subsistence needs of families and dependants after death.
Michael Rice, Managing Director and Head of Strategy at Rice Warner, said the increase in levels of personal insurance was attributable to an increase of default cover within superannuation, a greater focus on risk insurance by financial advisers and superannuation fund trustees, and the growing direct life insurance market.
However, he warned that Australians were still only insured for around half the amount needed to maintain their standard of living following the death of a partner or parent.
Mr Rice also highlighted the impact underinsurance has on the Australian economy: “Apart from individual detriment, underinsurance also comes at a substantial cost to the government. Currently the total cost to the government of life underinsurance across Australia is calculated to be $140 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 9 times this amount!”
