Life Insurance Take-up Crucial to Sustainable Federal Budget

The Government has not given enough consideration to the potential for life insurance to reduce welfare costs, according to the Financial Services Council (FSC).

FSC CEO, John Brogden, said one of the key recommendations the Council would make to the Financial System Inquiry would be the role life insurance can play in reducing Government outlays.

Speaking about the Inquiry in the lead up to the 2014 FSC Life Insurance Conference, Mr Brogden said he believed the role the financial services industry plays in supporting the sustainability of the Federal Budget needed to be increased.

“Underinsurance has a significant impact on the Federal Budget as many of those with insufficient insurance ultimately draw on the Commonwealth Budget through various pensions.

“The potential for life insurance to reduce welfare costs has not been considered,” Mr Brogden said.

He explained that the FSC was currently examining the role the industry could play in reducing the future costs to the Government of the National Disability Insurance Scheme (NDIS) and the Disability Support Pension (DSP).

…life insurance can be the private sector solution to the increasing budget costs of welfare

“Just as superannuation is the private sector solution to the costs of an ageing population and private health insurance is a private sector solution to managing health care costs, so too life insurance can be the private sector solution to the increasing budget costs of welfare.

“The FSC will provide evidence to the Inquiry of the capacity to privatise the costs of some welfare in Australia to reduce the long-term burden on the Budget.”

According to research released earlier this year by the FSC, if all Australians had adequate disability insurance, the Government could save $340 million annually. In the tenth year this would equate to annual savings of $2.5 billion (see: Aussies Underinsured by $304 Billion).

The sustainability of the Federal Budget is one of five themes the FSC’s submission to the Financial Services Inquiry will cover. The five themes are:

1. Global competitiveness
2. Financial system users
3. Federal Budget sustainability
4. Regulatory architecture
5. Superannuation

Insurance is shaping up as a major policy issue for the FSC in 2014. Earlier this year, the FSC used its Federal Budget submission to call on the Government to increase the take-up of private disability insurance. Click here to read more.