Superannuation members aged under 25 are paying up to five times as much in life insurance premiums as their age group receives in insurance payouts when they die or are injured.
The modelling on the cross-subsidy from younger to older super members was presented by Rice Warner to superannuation and life insurance professionals at a conference in Canberra on Monday.
Parliament is set to vote on the legislation next month so superannuation members aged under 25 and those with super balances below $6000 would no longer automatically be defaulted into life insurance and would instead need to consciously opt in.
Japanese-owned TAL Life, Hong Kong’s AIA Group, American giant MetLife and German reinsurer Munich RE are pressing the government, Labor and crossbench senators to water down or abandon legislation intended to stop default life insurance fees eroding superannuation account balances by between $2 billion and $3 billion a year.
Andrew Boal, chief executive at the retirement income industry's leading actuary, Rice Warner, said under 25s on average were charged four to five times as much for insurance premiums as their expected claims.
"That was a concern to me and one of the issues around our industry needs to be fairness," he said.
However, he said reducing the cross-subsidy by ending default life insurance inside super for under 25s and super balances below $6000 would push up the price of insurance premiums by 10-15 per cent for remaining members.
Liberal senator Andrew Bragg told the conference that unnecessary insurance "drained" $1.9 billion from superannuation each year.
MLC Life Insurance chief executive David Hackett fired back at Senator Bragg, telling the him and the audience that the proposed changes would lead to more people being under-insured, increase the cost of insurance and "pressure the financial advice sector".
First State Super chairman Neil Cochrane said there was "no gravy train" on life insurance. He said the government should allow default life insurance for "higher risk" police, fire fighters and ambulance paramedics so they would not be priced out of opt-in insurance.
ClearView Wealth managing director Simon Swanson separately told The Australian Financial Review for the hundreds of Australian workers who received group life insurance benefits from big insurers, "millions more had to pay annual premiums for worthless cover they could not claim on".
"Forcing workers to pay for life insurance they don’t need, can’t afford and in many cases can’t claim on is poor public policy and arguably illegal under the Sole Purpose Test and Best Interest Duty," he said.
By John Kehoe
12 August 2019