The Value of Group Insurance in Superannuation: Utilisation

Most working Australians receive death and disability insurance automatically through their superannuation fund. Few understand how likely it is that they may one day make a claim on this insurance. This article quantifies the likelihood of a claim over a member’s working life. 

Based on current rates of death and disability, approximately 30% of members will have at least one insured event over their working life, and the member or their beneficiaries will be paid a claim on their insurance. 

In this analysis, we have considered only a single criterion: utilisation. We have not undertaken a comprehensive value assessment; for example, there is no evaluation of how benefits are delivered by trustees or benchmark outcomes against criteria such as efficiency, effectiveness, or equity.

Default life insurance in group superannuation provides a crucial safety net for most working Australians, offering financial protection without the need for health evidence or individual underwriting. This automatic coverage ensures that most members have a basic level of death and disability insurance.

Group insurance in superannuation provides cover at generally lower premium rates and on preferential terms compared with individual insurance, due to the collective bargaining power and scale of superannuation funds, and their low distribution costs. This arrangement aligns with the primary objective of superannuation, particularly the goal of providing for a dignified retirement.

Why calculate the utilisation value?

The value of insurance in superannuation is not without its challenges and debates. Key concerns include the impact on retirement savings for those who do not claim, the transparency of insurance offerings and whether product designs adequately meet members’ needs and expectations. 

Superannuation trustees must carefully balance the benefits of insurance against the impact that premiums have on retirement outcomes.  

To assess the utilisation value of life insurance, we calculated claim incidence rates and applied survival techniques to estimate claim probabilities over the working life of a member. 

The results were then validated using: 

• published premium rates for a range of funds, together with APRA and ASIC statistics and research;
• published Australian Life Tables 2015-2017 and 2020-22. 

Assessing claim likelihood for insured superannuation fund members using survival techniques

Survival techniques were employed to analyse the probability of claim for a cohort of insured superannuation fund members^[1]. The analysis was conducted for temporary and permanent disability, as well as death, for individuals aged 18 to 66 inclusive.

Key considerations

• Selection period and legislative adjustments: Adjustments were made to claims and exposure data to account for changes in superannuation legislation, such as the Protecting Your Super (PYS) and Putting Members' Interests First (PMIF) reforms.
• Credibility of results for younger members: The introduction of the PMIF legislation has had a measurable impact on both exposure and claims volumes, particularly among younger cohorts. While initial data suggested a reduction in credible exposure for members under age 25, a view across the full selection period reveals that this dataset remains statistically robust, with over 360,000 insured members included.
• Overlapping benefits: The methodology was adjusted to minimise any overlapping benefits to avoid double counting, such as temporary and permanent disablement, particularly for funds with both TPD and default income protection benefits.
• Impact of COVID-19: The potential effects of the COVID-19 pandemic on claims and exposure were considered. Given that many funds observed reduced death claim volumes during this period, there is a possibility that claims probabilities may be slightly understated in the data.

Methodology overview

The methodology involved several steps to calculate the probability of a claim over a member’s working life:

1. Claim counts: The number of claims was calculated for each event year within the selection period, which ranged from three to five years. The data was broken down by age and gender and included claimants paid, claims pending, claims in the course of payment, and incurred but not reported (IBNR) claims.
2. Exposure calculation: Exposure was calculated for each event year^[2], consistent with the claim event year-end and broken down by age.
3. Incidence determination: The incidence by age was determined by calculating the total number of claims over the selection period relative to the group's exposure, essentially calculating "qx" for a life table.
4. Cumulative incidence: The cumulative incidence at each age was calculated to produce the "lx" (survivors) at each age/gender.
5. Probability of claim: The probability of a claim for someone aged 18 who stays in the superannuation fund until exact age 67 was calculated by taking the difference between l₆₇ and l₁₈ and dividing by l_18. This represents the count of claims divided by the original starting cohort.
6. Aggregation: The likelihood of a claim for disability and death was then aggregated. 

Assumptions

As noted above, assumptions were included for:

• Pending Rates and IBNR

• Aggregation: To aggregate across products, it was assumed:

1. All TPD claimants had initially lodged an IP claim,  
2. Death and IP were independent events.

Results

The results of the analysis are summarised in the table below:

Validation

To ensure the credibility and appropriateness of the assumptions and methodology used, we validated our analysis using publicly available data. 

Industry-published loss ratios and PDS premium rates

Publicly available loss ratios, such as those derived from the APRA Quarterly Life Insurance Statistics^[3] and Life Insurance Claims and Dispute Statistics^[4] showed high variability across insurers and product types.  

For the purposes of this validation analysis, the ASIC loss ratios from Report 675^[5] were preferred due to their longer observation period. These ratios were based on six years of data (2013–14 to 2018–19), collected from 11 superannuation trustees, representing approximately 40% of super accounts with insurance.

By applying ASIC loss ratios to PDS premium rates for each age, extracted from across a representative sample of superannuation funds, we derived implied claim and survival probabilities for each of the superannuation funds. 

• qx = (ASIC Loss Ratio) x (Premium Rate at age x)
• probability of claim during an insured member’s working life = 1 – (the product of (1-qx) from ages 18 to 66 inclusive)

Important notes:

• IP rates are the default rates. If the fund does not offer default IP, voluntary rates have been used. 
• For income protection, an average duration was required. For products with a 2-year benefit payment period, this was assumed to be 14 months. For a 5-year benefit payment period, this was assumed to be 26 months.
• The ASIC loss ratios were published in 2020. Many funds have been repriced since this time. The resulting probability of claim over working life may, therefore, be slightly overstated or understated. 

The results are summarised below^[6].

Australian Life Tables

Survival techniques were again utilised, as described above, and applied to the Australian Life Tables.

The results are consistent with the fact that the working population aged 18 to 67 exact is, on average, healthier than the total population aged 18 to 67.

This additional analysis, providing an aggregated utilisation rate of 27%, validates and provides a reasonableness check on the methodology and assumptions adopted in this article (or, at a minimum, confirms industry consistency), generating 30% likelihood of claim.

Conclusion

Current rates of death and disability imply 30% of members are expected to experience at least one insured event during their working life, resulting in a claim being paid to them or their beneficiaries. 

This level of utilisation supports the conclusion that when funds provide appropriate levels of automatic insurance in superannuation, it delivers meaningful protection and benefits to members and their financial dependants.

References

APRA. (2025, April 15). Life insurance claims and disputes statistics. Retrieved from APRA: Data and Statistics: https://www.apra.gov.au/life-insurance-claims-and-disputes-statistics  

APRA. (2025, 2 28). Quarterly life insurance performance statistics. Retrieved from APRA Quarterly life insurance performance statistics: https://www.apra.gov.au/quarterly-life-insurance-performance-statistics  

ASIC. (2020, 12 14). REP 675 Default insurance in superannuation: Member value for money. Retrieved from Australian Securities & Investments Commission Reports: https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-675-default-insurance-in-superannuation-member-value-for-money/  

Australian Government Actuary. (2019, 12 5). Australian Life Tables 2015 17. Retrieved from Publications: Australian Government Actuary: https://aga.gov.au/publications/life-tables/australian-life-tables-2015-17  

Australian Government Actuary. (2024, 12 12). Australian Life Tables 2020-22. Retrieved from Publications: Australian Government Actuary: https://aga.gov.au/publications/life-tables/australian-life-tables-2020-22

Footnotes

^[1] Based on the best estimate claim rates across a range of large superannuation funds covering 2.5 million insured members and using a working life from age 18 to 66 inclusive.

^[2] Noting small timing variances in year-end cut-off dates depending on the scheme.

^[3] (APRA, 2025)

^[4] (APRA, 2025)

^[5] (ASIC, 2025)

^[6] A note on purpose and use: This analysis was conducted solely to validate the utilisation of insurance in super methodology. It is not intended for use in pricing, reserving, financial reporting, or any other purpose beyond its original context.

^[7] (Australian Government Actuary, 2024)

^[8] (Australian Government Actuary, 2024)