Insurers are concerned that government plans to crack down on life insurance policies sold through superannuation funds will leave some consumers dangerously exposed.
People with superannuation accounts that have been idle for more than 16 months will have their life insurance cover cancelled from 1 July. The intention is to prevent superannuation accounts being eroded by life insurance premiums, which may have been added by default and which may not even be known to the consumer.
However, insurers are warning about the “awful” results of the government reform, saying they have not had enough time to warn people they will no longer be covered.
At The Australian Financial Review’s banking and wealth summit this week, TAL life insurance chief executive Brett Clark said: “There’s going to be a lot of people after July 1 this year who go to make that call [to their superannuation fund] when something bad does happen to them or their families, and they’ll be told by their fund, ‘Sorry, we cancelled your cover on July 1’,” Fairfax Media reports.
“We’ll do all those things that the law requires us to do. We’ll do our best to help them, [but] there will be some people who will anticipate they still have that cover post July 1 and they won’t, and they’ll go to claim it and there won’t be any insurance there for them.
“There will be some awful stories that we’ll have to deal with,” Mr Clark said, adding that between 15 and 20 per cent of superannuation accounts would be affected by the changes.
AIA Australia and New Zealand chief executive Damien Mu said: “The issue here is that’s just going to happen automatically on July 1, which means millions of Australians will lose their cover, potentially not knowing they’ve lost that cover, overnight.”
Mr Mu confirmed that AIA had not yet communicated with affected members, even though the deadline was just three months away.
“The detail of the policy is still being developed, and then we need to work as an industry and with our superannuation funds to try get as much communication out there as possible,” he said.
Mr Mu said that “having more time to do it” was in customers’ best interests.
“We don’t have to do a lot in terms of the technical part of it,” he said. “It’s actually making sure that the communication is appropriate in allowing people to engage and be aware of this.
“It’s important to note that we’re not disagreeing with the policy position on this, we’re just thinking [of] how we ensure unintended consequences [don’t] happen.
Do you have life insurance? Is it linked to an idle super account? Are you aware of the 1 July changes?