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Profit-sharing bonus should be abolished
The profit sharing obligation between superannuation funds and their insurers should be abolished, a superannuation lawyer believes.
Responding to the Australian Prudential Regulation Authority member, Helen Rowell's, downplay of the bonuses, Berrill and Watson principal, John Berrill, said it should be rid of and the eventual superannuation life insurance code of practice should address it.
"It's clearly a conflict because superannuation funds have that statutory obligation to pursue claims where it is reasonable to do so. How is that not a conflict, particularly for for-profit super funds? For not-for-profit funds, it's not such an issue because their incentive is not based on profit," Berrill said.
"If you're a for profit super fund, you have an incentive to act in the best interest of your shareholders to minimise claims, but still within the ambit of ‘what is an acceptable claim' but that conflicts with your statutory obligations that you claim to do so. They should get rid of it."
On including it in a super life insurance code, Berrill said it would probably need the Australian Competition and Consumer Commission (ACCC) approval but that was not an issue.
"Super funds for the last two years have had an obligation to challenge insurers' decisions if it is reasonable to do so," he said.
"So if an insurance company says no to a person's claim and is not eligible for income protection payment because they're capable of doing their normal job if a super fund thinks that's a lie then they've got a statutory obligation to challenge that decision."
Berrill noted that a super life insurance code would need to align with the recently announced Life Insurance Code of Conduct.
He said timelines, and day-to-day communication and exchange of documents with consumers were the top issues the code would need to address.
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The only thing that should be abolished is the law firms that actively encourage fund members to engage their services on TPD claims before they've exhausted the Fund's internal resolution process