The Australian Securities and Investments Commission (ASIC) is cautioning superannuation trustees to proactively consider whether income protection (IP) insurance offerings are delivering value for members or unnecessarily eroding members’ balances.
The corporate regulator reviewed five of the largest super funds which provided default IP insurance on an opt-out basis to approximately two million members.
The key area of concern for ASIC was that most IP insurance policies contained ‘offset’ clauses which meant the benefit was reduced if the individual received other kinds of income support, including sick leave or workers’ compensation.
ASIC commissioner, Danielle Press, said the regulator was not concerned that offset clauses existed, rather that there was room for better communication with members as it had the potential to unnecessarily erode the super balances of members receiving other kinds of income support.
“We found that the trustees were not proactively giving their members clear explanations about when insurance benefits would or would not be paid as a result of offsets,” Press said.
“This information is relevant to members in considering whether they should opt-out of default IP insurance. It is also useful when members are making an insurance claim.”
ASIC also said it would undertake surveillance next year on the progress made by industry more broadly in insurance in superannuation.
ASIC’s review found:
To address the issues identified in the review, ASIC is recommending that trustees take the following steps:
ASIC has written to the five trustees outlining specific findings and areas for improvement.
Separately, ASIC sought data directly from three large life insurance companies providing insurance for the trustees in the review. However, the data provided by the insurers was insufficient to determine the proportion of claims with an offset or the types of income that are offset and the impact on insurance benefit payments.
ASIC had written to the insurers asking them to consider what changes needed to be made to their systems and practices in order to extract accurate and reliable data on IP offsets going forward.
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