News Regulations13 Sep 2018

Australia:Regulator airs concerns over insurance in superannuation sector

| 13 Sep 2018

The Australian Securities and Investments Commission (ASIC) has said that arrangements under which trustees of some of Australia's largest superannuation funds receive rebate payments or other benefits from their insurance providers can raise conflict issues.

ASIC, which is Australia's integrated corporate, markets, financial services and consumer credit regulator, released a report “Insurance in superannuation” last week, notes that rebates are typically paid when the insurance claim levels for a period for the fund’s members are lower than a benchmark agreed with the insurer.

Rebates received from insurers by the relevant trustees totalled approximately A$28m ($20m) for the financial year ended 30 June 2016. Approximately 15% of trustees reported having rebate arrangements with their insurers. Nearly 20% of trustees reported receiving other benefits from insurers, such as corporate hospitality. These arrangements were not always disclosed. However, ASIC said that it found no evidence that rebates led to lower claims success for superannuation fund members.

ASIC reviewed 47 superannuation trustees and focused on: insurance claims and complaints handling; disclosures about insurance (including about cover ceasing); insurer rebates paid to trustees, and whether members were defaulted into demographic categories that resulted in higher premiums.

Findings of concern included:

  • poor complaints handling timeframes and practices, as almost a third of trustees in the review took more than 90 days on average to resolve complaints about insurance in 2017-2018
  • some trustees were still automatically defaulting members as ‘smokers’ when transferring them to different sections of the same fund, resulting in higher insurance premiums payable by those members. All trustees have agreed to discontinue this practice.

The regulator also notes that while 70% of all life insurance policies in Australia are held through superannuation funds, 24% of superannuation members identified that did not know whether they had insurance and 16% did not know what insurance they had.

ASIC Deputy Chair, Peter Kell, said that while some improvements were being introduced by trustees, there was considerable work to do to raise standards in the areas covered by the review.

Separately, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry started hearings this week into misconduct by life insurers.


 


 

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