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.
In the olden days (about ten years ago) I was the adviser on some Corporate Funds. As each new member was enrolled, we contacted them and asked if they were smokers or non-smokers and updated if non-smokers. At the same time we offered each new member and each exiting member personal advice, which some took and many didn’t.
Isn’t a part of the problem that advisers are no longer advising on most corporate funds (since the rule changes)? And isn’t another part of the problem that people are not taught to engage with their superannuation by schools, employers, and Government and taught to take some responsibility for their own financial situation?
Financial Literacy is a huge problem, and not enough advisers is making it worse.
and it is always mostly the same culprits for any suspect issue
This has been a terrible rort by group life insurers and industry superfunds for decades. I have a client who’s also got Westpac group life cover through an old employer and he wasn’t aware, as a non-smoker, he was being charged smokers rates for years and years, until I showed him that is.
What makes this worse TODAY as opposed to years ago too is that the percentage of smokers compared to non-smokers has changed enormously yet the providers of these default group life and industry superfund insurance solutions continued to take higher premiums when the ratio has clearly reversed now. Its a disgrace they knowingly do this. Happy to see this change.
So it’s the insto’s fault your client never read his exit statement and every annual statement sent to him since and now, as a result of this change, every person that did read it and change to non smoker rates will be penalised as a result your clients and others like them’s apathy. Funny how people still blame other for their errors and refuse to take responsibility.
One of the reasons the whole insurance industry is shot is due to non seperation of smokers and non smokers and generous non underwritten insurance provided by default insurance and underwritten by those same companies that ask us for full medicals for our clients. Why they cant just have a tick a box, smoker yes or no on the application forms for the super fund then base premiums off that is beyond me. How do the actuaries for the group insurance price risk if they dont know what risk is on the books. Its astounding that a person who has been declined with other insurers can just open up a super fund and be given default insurance thats not underwritten, its a massive loophole.
In the only wise words of John Howard ” don’t be alarmed — be alert “. ” why is anybody ALARMED??. You see when they own the entire supply chain, they do what they want.
OK, so for those that start charging non-smoker rates as a default, will sums insured be reduced for those who are smokers in the event of a claim. I’m no fan of the institutions, but this look like a no win to me.
Here we go again. someone with a brain MUST surely force a total revision and have clients sign a declaration before any premiums are deducted. Just another load of crap to destroy our reputation because it is always the advisers fault no matter what. Don’t see any reference to industry funds but then again it is retail insurers who cover these funds .No more RCs, just a smart person to lay out simple enforceable rules to clean up once and for all.
Wow – that is very close to being deceptive. Good job by ASIC.
XY’s question is a good one – are funds that don’t distinguish on smoking status overcharging the vast majority of their members?
So what about Industry fund cover? They don’t have any distinction between smokers and non-smokers. Either the smokers are paying less or the non-smokers are paying more.
The smokers are paying less, why most people I see who are smokers end up keeping as much default cover as possible.
Once again ASIC only looks at retail business, but Industry Super goes through unquestioned.
These evil insto’s…..but maybe some super fund members should read the communications and fill in the non smoker declaration that they were encouraged to do.
IOOF is the worst of the worst. They have no regard for either clients or advisers.
You obviously havent heard of AMP
A dead heat for the biggest …….