Last year, the Australian Investments and Securities Commission (ASIC) conducted a review of 15 trustees’ efforts to improve their life insurance arrangements, as well as to address regulatory obligations and issues raised by the regulator since 2019.
The review focused on a single fund from each trustee and encompassed large and small industry, retail, and corporate funds, including products from Australian Retirement Trust, BT Funds Management, IOOF, and Mercer.
The regulator has now outlined its findings in a report, which points to positive changes among many superannuation trustees, including improvements to the design of their policies and the streamlining of claims processes. Additionally, ASIC found that some trustees had enhanced their communication efforts to help members better understand their insurance options.
Despite these improvements, the regulator noted that there are still areas where trustees need to make further efforts to better serve their members.
“Whether it is default or optional insurance, we want fund members to have confidence that they are receiving value for the insurance they hold through their super and that they will be able to claim on it when they need to,” said ASIC commissioner Danielle Press.
“Trustees are well placed to identify and prevent harms such as members paying for insurance they cannot claim on when they need to. They decide how insurance in superannuation is designed and delivered to their members.
“However, while the trustees in our review have shown some progress with their insurance arrangements, progress is not necessarily consistent across the industry.”
ASIC noted that many trustees have taken action to modify or remove restrictive total and permanent disability (TPD) definitions from their default insurances, highlighting this as a positive step in the changes made by trustees to the design of their insurance arrangements.
According to the regulator, the changes made to date represent a positive step in reducing the risks that members are receiving insurance that does not meet their needs or paying for cover they cannot claim on.
However, ASIC added that trustees “need to continue improving” how they monitor and respond to these risks.
Moreover, while the regulator found that many trustees had made efforts to streamline claims processes in collaboration with insurers, it flagged the need for more work to remove “frictions” in the claims-handling process and to improve member understanding of insurance coverage.
Namely, ASIC’s review highlighted that the share of TPD claims that are withdrawn had increased from 5 per cent in June 2020 to 6.7 per cent in June 2022, while the number of recorded disputes related to insurance in super claims, recorded by insurers through internal dispute resolution, had remained “relatively high”.
Finally, ASIC’s review determined that, while some trustees had improved the way they explain their insurance offerings, others had “not been as responsive” and needed to focus more on upping their communications and processes.
ASIC confirmed it had written individually to the trustees, providing them with detailed feedback and identifying specific areas where improvements are required.
“I strongly encourage all trustees to commit to a thorough analysis of their insurance arrangements using the information and action points in ASIC’s report to identify where they fall short and address any gaps. Life insurers also need to play their part by working collaboratively with trustees to implement any improvements,” Ms Press said.
“Trustees, in particular, need to ensure they have robust systems, processes, and controls to effectively administer their insurance arrangements. Trustees that fail to do this risk undermining any improvements they are trying to make for their members’ benefit.”
Ms Press noted that ASIC expects all super trustee boards to “engage with the report, learn from it, and take action” to make improvements to ensure strong member outcomes.
“Where appropriate, ASIC will use its regulatory powers where trustees are not complying with their obligations,” she added.
well they can’t do it, their systems are not built for insurance. ASIC should already know that, it has been well known by moi for a decade or two.
Perhaps Danielle could recommend members get advice from a non aligned financial advisor. Who would select the best option for the client. Not just what the fund has to offer. What a unique idea, get advice from a fully qualified advisor??
That would be in the best interest of the consumer would it not. Rather than letting the super fund minimise the cost of claims because the Insurer is actually controlling the offer.
An initial improvement in insurance outcomes for clients might be for ASIC to get a handle of insurances themselves. There was a chap not so long ago who was banned for recommending to a client that they hold insurances that were calculated excluding their Super balances, specifically due to the fact that the main income earner didn’t want (in the event of death) the spouse to be left with insurance that could be spent but with no money for future retirement. The difference in cost between including or excluding the super balance at the time was negligible especially given the high income they had. ASIC in their infinite wisdom didn’t care about the reasoning and claimed it was recommended purely to generate profits for the Adviser (who wasn’t eligible for profit-sharing or bonus arrangements anyway and detailed this to ASIC to no avail). Add to this the fact that the area of insurance has since become an area for most Advisers to avoid proactively seeking new opportunities due to the ridiculously low level of remuneration it provides compared to the enormous amount of time and resourcing to provide AND the increased chances demonstrated by ASIC for penalties or removal from the industry and we can all see where the real risks for clients in the insurance space are. Restructure, retrain and rein-in the regulator and perhaps outcomes for clients will improve eventually.