AMP, CFS, IOOF and Suncorp have been named among a number of superannuation businesses that previously classified new members ‘smokers’ by default and charged them higher life insurance premiums, with the companies opting to change after discussions with ASIC.
The corporate regulator reported that between 2017 to 2020, it engaged with seven super businesses, comprising nine superannuation trustees, that had been either at the time or historically assigning smoker status to members in specific products unless they actively opted out of the categorisation.
The businesses in question were AMP, Colonial First State, IOOF (including OnePath), Intrust, Netwealth and Suncorp.
The practice was said to be particularly common when members who changed employers transferred to a personal plan from their employers’ plan.
Following its intervention, ASIC stated that all seven superannuation businesses stopped charging new members life insurance premiums at smoker rates by default and they moved or are in the process of moving existing members paying smoker premiums by default onto non-smoker or blended rate.
Further, four of the businesses were said to have refunded or agreed to refund members for the extra premiums paid because of the default smoker classification – with some paying in part, others paying back the premiums in full.
ASIC commissioner Danielle Press said more than 5,000 members will have received more than $3.6 million in compensation when the planned remediation is complete.
The parties not issuing refunds are AMP, IOOF and Suncorp. AMP is still yet to complete transferring members from its AMP Superannuation Savings Trust fund off the smoker rates, while all of the other companies have finished the process.
The OnePath Masterfund product had the greatest number of affected members, at approximately 146,000.
Meanwhile, CFS is giving a partial remediation of $2.97 million to 3,894 affected members and Equity Trustees is paying out a partial remediation of $34,507 to 65 impacted members.
Intrust and Netwealth are paying back the full amounts, of $29,316 and $598,365, respectively.
Ms Press noted generally, insurance premiums for smokers are substantially higher.
“Given the low prevalence of smoking among Australian adults classifying members as smokers for insurance offered through superannuation unless the member takes active steps to confirm non-smoking status is contrary to community expectations,” Ms Press said.
“Insurance in super is complex. Many Australians may not realise that default classifications can impact the price of their cover and therefore, reduce their retirement benefits.
“In light of the low smoking rate, merely providing disclosure and putting the onus on members to act is not enough to support good member outcomes.”
Choosing appropriate default settings for coverage is an important part of a trustee’s responsibilities around group insurance, Ms Press added.
“Trustees should ensure that members are not disadvantaged due to disengagement or inertia,” she said.
“I strongly encourage trustees to take into account the composition and needs of their membership and check whether their default settings for insurance coverage are reasonable.”
ASIC has signalled it is looking more broadly into the super industry’s progress on improving insurance outcomes for consumers, having released a report on examining industry progress on the implementation of the Insurance in Superannuation Voluntary Code of Practice.
The regulator is expecting to publish an additional report by the end of the year.
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