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Loss of insurance for low-balance accounts could cause legal headaches
Superannuation funds could face legal difficulty once group insurance for inactive accounts is switched off on 1 July, as the Protecting Your Super reforms come into effect, as members who were unaware they were losing their cover may seek compensation should they need its protection.
TAL’s general manager, group life product and pricing, investments and retirement incomes, Darren Wickham, labelled the problem as a “sleeper issue” with the legislation at an Actuaries Institute media lunch yesterday, warning that members may seek legal remedies if they ended up needing group life insurance cover.
He anticipated there could be as many as 4,000 – 5,000 claims made by such members in the next 12 months, and said that the issue of whether the Government, the super fund or the individual should pay in these situations hadn’t been thought out.
This tied in with a broader concern in the insurance and superannuation industries that many members who didn’t want to lose their group cover could end up doing so under the reforms. While superannuation funds were contacting people who would be without cover from 1 July, problems such as address changes or members simply not reading fund communications meant some might not realise.
Wickham noted that of the four million inactive account members so far notified by funds regarding their cover, a large portion of 10 to 15 per cent had opted to continue receiving the insurance.
While he believed that the reforms were, overall, a positive development, as “people don’t need insurance eroding their [super] balances”, there were issues such as this that could prove problematic in their rollout.
At the same lunch, Wickham said that a rise in mental health claims was another key issue insurers were facing, with total and permanent disability (TPD) benefits claims substantially growing at a faster rate than the prevalence of mental illness.
Claims for lump sum payments in these situations caused problems because of the difficulty of determining whether mental illnesses were permanent, and as their rise could then drive premiums up.
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It isn't the superannuation funds' trustees who should subject to any back lash for members' loss of insurance entitlements; this farce has been created by ill advised legislation. Account holders should also be responsible for their own actions and not wait until it is too late. It has already been an expensive exercise. The situation is only going to get worse.