The underinsurance gap has broadened compared to three years ago, new Rice Warner research finds.
Over the last 18 months, a slew of government regulation as well as unforeseen circumstances have contributed to more Australians being underinsured.
This includes the Insurance in Super Voluntary Code of Practice, Life Insurance Framework reforms, Protecting Your Super (PYS)/ Putting Members' Interests First (PMIF) legislation and COVID-19, according to the firm's 2020 underinsurance report.
The PYS and PMIF legislation in particular have played a key role in attempting to remove duplicate accounts and unnecessary insurance through the ceasing of default insurance cover for young members, inactive accounts and low balance accounts.
"The impact of this has allowed us greater clarity than ever before around how many Australians are insured and the amount of insurance held compared to their needs," Rice Warner said.
While there had been a significant increase in the amount of insurance cover provided to the community though superannuation funds over the last 10 years, Rice Warner said, the current landscape has led to the underinsurance gap widening since 2017.
Retail advised insurance new business volumes sales have been reducing, due to a similar reduction in active insurance advisers.
The aggregate sum insured held via this distribution channel has been decreasing since the end of 2018. "Although we will see product innovation as insurers respond to APRA's intervention on retail income protection products, it will be challenging to completely reverse this trend," the report read.
Rice Warner recommends the life insurance industry raise greater awareness about this issue.
"The availability of Insurance Needs calculators for use by individuals to assess their unique circumstances has allowed individuals to better understand and tailor their insurance arrangements. Targeted marketing and improving the ease of accessing insurance via all distribution channels is also important," Rice Warner said.