Insurance cover in superannuation could be redesigned to closer meet the financial needs of members, research house Rice Warner believes.

Because insurance in super needs depend on age and family situation, insurance products could be designed around such variables as age and family type.

Currently insurance is pretty much a ‘one size fits all’ arrangement with everyone paying the same premium in the same category getting the same level of cover. Even those that choose to pay more get the same upgraded cover as others in their category.

However as the following table from Rice Warner shows, people’s insurance needs vary dramatically with their life circumstances.

Rice Warner says all this could change with smart design.

“Using the above statistics, we could shift the default sum insured to one based on needs – all without changing the premium or getting any additional information from members,” the research says.

“We would simply assess the amount of the claim based on the dependants at the time of death.”

The super industry has begun to move on the discrepancies within super that see younger people erode their accounts by paying for insurance they don’t need.

Recently Cbus and AustralianSuper have announced moves that will reduce the cost of super for young members by reducing or eliminating coverage of various types of insurance for those under 20.  Other industry funds such as HOSTPLUS and First Super have been working to reduce the cost of insurance without compromising cover.

And, according to another researcher, Rainmaker, an average 20-year-old now would receive around $175,000 in default death cover, down from from a high of $210,000 in 2014, Fairfax Media reported.

But the average level of cover offered to younger fund members has dropped by 20 per cent over the past two years.

“In the last two years default cover has fallen by 20 per cent for 25-year-olds, compared to a 10 per cent fall for the average 50-year-old,” said Rainmaker executive director, Alex Dunnin.

But Rice Warner wants bigger change than the funds are so far envisaging. A redesign of the system could look like this, it says.

That would see cover provided on the basis of need. However progress is unlikely to be quick on this front as typical insurance contracts are for three years.

Funds will likely have to wait until they can renegotiate coverage with insurers. Rice Warner expects that extra pressure for change will be applied either via government or the media, speeding up the process.