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Insurance inside super under scrutiny
Mike Taylor writes that superannuation funds have found themselves dragged into the spotlight which has been focused on the perceived shortcomings of the life/risk sector and are facing some harsh judgements. This is part two of a group insurance feature.
2017 has represented a busy and pivotal year for superannuation funds and the manner in which they deliver insurance to their members.
Superannuation funds have found themselves dragged into the spotlight which has focused attention on the broader life/risk industry and claims-handling – something reflected in the formation of the Insurance Inside Superannuation Working Group (ISWG).
However what has been less publicised is that beyond the effort being put into the ISWG, 50 superannuation funds are currently the subject of scrutiny by the Australian Securities and Investments Commission (ASIC) which has already delivered a less than glowing report card.
The attention being directed at the 50 superannuation funds is part of ASIC’s Insurance in Superannuation project which is looking at complaints handling and disclosure, as well as aspects of conflicts, incentives and culture.
Importantly, ASIC examination of the operation of insurance inside superannuation is being undertaken at the same time as the work of the ISWG, and there has been at least tacit acknowledgement that the final outcome of the industry working group will be taken into account by the regulator.
ASIC last month noted the formation of the ISWG and the fact that it had the key deliverable of a code of practice that would apply to superannuation funds. The regulator said that it supported the thrust of the ISWG’s work but it was clear from its Report 529 Member experience in superannuation that it had already identified some significant failings.
Among the failings outlined by the regulator in late June were:
- The lack of adequate upfront and ongoing disclosure to members about insurance cover (e.g. exclusions, changes to or cessation of cover); and
- The use of inappropriate defaults when transferring members between different divisions of funds (e.g. ‘smokers’ or ‘blue collar workers’).
The ASIC report said the regulator had sought improved disclosure from trustees involved in the projects and its reviews and now expected all trustees to review their disclosures to ensure consistency between their policies, product disclosure statements and other disclosure material, and to provide adequate notification of changes to or cessation of cover.
“Further, we expect all trustees to immediately review their default arrangements in insurance, particularly where members are being transferred between fund divisions without consent,” the report said. “Defaulting members as ‘smokers’ or ‘blue collar workers’ in the absence of information about member status is inappropriate.”
On the question of claims and complaints handling, the ASIC report pointed to:
- Issues that may arise when trustees rely on administrators to handle aspects of claims and complaints workloads;
- Poor disclosure about claims and the processes members must follow, particularly the need to go through internal dispute resolution (IDR) before going to the Superannuation Complaints Tribunal (SCT); and
- The failure of trustees to provide adequate written reasons for decision in relation to complaints. The regulator said it expected trustees to ensure their claims and complaints handling processes were clearly explained and consistent with good industry practice; and to provide written reasons for decisions where required to do so, with a focus on the information needs of the member.
Given the findings contained in the ASIC report it was probably hardly surprising that the work being undertaken by the ISWG reflected many of the issues raised by the regulator and that, in April, it outlined its work priorities as including:
- Reducing benefit erosion on superannuation account balances for members, including establishing the right level of automatic cover for young people and low income earners;
- Reducing inappropriate, multiple insurance policies;
- Providing better and more timely assistance to members during claims;
- Improving superannuation fund member communications on insurance;
- Improving data standards to improve service to members; and
- Undertaking independent research on the costs and benefits of group insurance within superannuation.
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Wouldn't it be great if ASIC and the Government acknowledged how complicated this all is and recommend that for the hundreds of thousands of dollars we are potentially talking about - that people get advice on what they have and what they need. Inside super, outside super, or anywhere.