Insurance inside super under threat – Mercer

Mike Taylor

Managing Editor and Publisher

21 March 2025

Insurance in superannuation is under threat with coverage rates having shrunk to a point where only 50% of members are covered, according to new research into the Australian superannuation system released by Mercer.

The research points to the benefits of insurance in superannuation including that funds paid members $7 billion in insurance benefits against a backdrop of $6.5 billion in premiums to 30 June, last year, but says the system under threat because of scale and affordability.

What is more, the research suggests the problems facing insurance in superannuation are largely owed to Government policy changes.

It said that while the issues facing the regime are “multifaceted’ they have “largely been the consequence of the introduction of Protecting Your Super (PYS) and Putting Members’ Interests First (PMIF) packages, which restrict the members who can be provided insurance by default”

“We expect further challenges, with ASIC and APRA placing a firm focus on enhancing the insurance experience for members,” the Mercer report said. “On balance, insurance in superannuation is often seen as falling short of expectations, despite several clear areas (and cases) where its inclusion has added significant value.”

“We consider insurance in superannuation to be at a turning point, with funds often viewing insurance as a supporting part of product and proposition rather than a core aspect,” it said.

The Mercer report outlined some of the challenges facing superannuation funds in delivering insurance, not the least of which being the reality that there are now fewer providers.

“Consolidation in the market means that three insurers now service 60% of funds and receive 78% of premiums,” it said. “This presents a challenge in that it makes it difficult for competitors to operate. Funds will need to confront the reality of fewer providers.”

The Mercer report said it expected two cohorts to emerge – funds for which insurance is regarded as a compliance feature and funds that use it as a point of differentiation.