A fund’s default insurance settings serve as a critical point of differentiation and have a meaningful influence on member retention rates.
In a consolidating and increasingly competitive superannuation market, the default settings adopted by funds are emerging as more critical drivers of growth. With member awareness and engagement continuing to rise, funds must ensure their default investment, insurance, and retirement solution settings are not only well-aligned with the evolving needs of their members but also designed for ease of transaction. Funds that fail to deliver accessible, relevant, and value-driven default options risk losing their appeal, making it harder to attract and retain members in a rapidly changing landscape.
Growing member awareness and engagement is clearly reflected in recent APRA1 data, which shows that over 30% of members with Death and TPD insurance have actively chosen insurance arrangements other than the default settings. This figure would be even higher if it included members who have fully cancelled their cover. In effect, nearly two in five members have made active decisions regarding their insurance—highlighting a significant shift toward greater member involvement in superannuation choices.
This heightened level of member engagement presents both a significant opportunity and, for some funds, a potential risk with respect to growth objectives.
1 APRA Annual fund-level superannuation statistics June 2024
Ultimately, fast and accurate processing of member transactions is essential to delivering a positive experience and fostering long-term loyalty. The inverse also holds true—operational shortcomings can erode trust and damage retention. In recent years, a number of funds have launched major operational initiatives to overhaul critical processes, particularly in response to challenges in areas such as death benefit claim processing. While redesigning these processes is a vital—though complex—first step, it often involves coordination across multiple entities, including insurers, the fund itself, and in some cases, external administrators.
To achieve sustained and continuous improvement, funds must go further by identifying the optimal data and reporting needed to gain ongoing insights into member behaviour and uncovering operational weaknesses or risks. By building a more robust and dynamic operating model, funds will further benefit by encouraging (or ‘nudging’) more members to engage and interact with their superannuation offering.
There is a strong correlation between positive member engagement and retention, and in my experience, leveraging ancillary benefits—such as life insurance—can be a powerful driver of member loyalty. In previous analyses conducted in collaboration with superannuation funds and health insurers, we’ve consistently found that members or customers who actively elect new or additional life insurance cover exhibit attrition rates that are typically half those of the broader portfolio population.
Reflecting a similar pattern, the latest APRA data indicates that funds with low member engagement with their default insurance offerings experience significantly higher member outflows compared to those with more engaged members. This trend is clearly illustrated in the chart below, which covers the insurance offerings of the 12 largest superannuation funds—collectively representing almost 75% of all insured members.
Funds with insurance engagement levels above 20% have a combined member lapse rate of just 3.4%, compared to 6.0% for funds with engagement below 20%—a difference of 76%, underscoring the strong link between insurance engagement and member retention.
While there are undoubtedly many reasons why members may leave a fund or modify their insurance cover—some directly connected, others not—further analysis of APRA data reveals a notable trend.
Those funds above with lower or negative insurance engagement tend to face more significant challenges related to affordability and perceived member value within their default insurance offerings. This suggests a meaningful link between the design of a fund’s default insurance offering and member retention rates. Therefore, default insurance settings should be carefully evaluated from multiple angles to ensure they are aligned with member needs, preferences, and value perceptions. These considerations should be clearly reflected in the fund’s Insurance Management Framework to support better member outcomes and enhance long-term retention.
In summary
Enhancing both the default insurance settings and the fund’s operational capabilities offers significant strategic value. When effectively executed, these enhancements can become key competitive advantages—elevating the member experience and fostering deeper, more sustained engagement. Even modest improvements in member lapse rates can meaningfully contribute to greater scale and sustainability—key success factors in an increasingly competitive and consolidating superannuation market.
