Unintended consequences for opt-in insurance: KPMG

Group life insurance premiums are set to rise if the Federal Government implements proposed changes to default insurance in superannuation, according to KPMG.

The firm's latest research forecasts a 50% reduction in group life insurance cover as a result of the Government's budget proposal that specific member cohorts must opt-in to obtain cover within their superannuation fund.

According to the firm, a further 42% reduction in collected insurance premiums would lead to a 26% increase in average group life premiums across the industry.

Based on the firm's view that premiums will rise, KPMG has also predicted projected retirement benefits to erode further than the current level, deteriorating from 6.2% to 7.3%.

KPMG's research presents opposition to the Governments claims that moving away from a default framework would protect the retirement savings of specific groups of superannuation members.

In the 2018-19 budget papers the Government claimed the change would "protect the retirement savings of young people and those with low balances by ensuring their superannuation is not unnecessarily eroded by premiums on insurance policies they do not need or are not aware of."

The firm added women and low income earners would be most impacted by the proposed changes, with the anticipated 26% increase in insurance premiums set to wipe an extra 1.4% on average from the account balances of females through erosion. Currently sitting at 15.8%, the figure is set to increase for people earning less than $18,200 in annual income to 17.6%.

In its Insurance in superannuation report, KPMG recognises other factors will determine the overall outcome of the changes, yet remained concerned about the impact that may result.

"However, we remain concerned that these changes may have significant unintended consequences to member retirement account balances," KPMG said.

Read more: KPMGFederal Government
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