Kenneth Hayne’s financial services royal commission put a broom through the industry, right? So why is the corporate watchdog now preparing to prosecute some of Australia’s biggest superannuation funds and pursuing CommBank’s insurance arm?
The Australian Securities and Investments Commission (ASIC) has found funds have already failed to comply with a new code of conduct aimed at limiting insurance fees, and says these fees are eroding retirement savings.
ASIC has sharpened its teeth post royal commission and is promising “tough and uncompromising” action. This is evidenced by its pursuit of CommInsure, which has been charged with “hawking” for trying to sell insurance products through unsolicited phone calls. CommBank is facing 87 criminal charges relating to CommInsure, which has been sold to Hong Kong-listed AIA Group.
In confidential meetings with major superannuation lobby groups, ASIC has restated its concerns about the value consumers get from default opt-out insurance, about the length of time it takes for claims to be processed and the rejection rate for total and permanent disability insurance claims.
The Australian says ASIC has warned it will be “highly critical” of superannuation trustees that use an “Activities for Daily Living” (ADL) definition for insurance policies to deny otherwise legitimate claims.
The definition reportedly contains a legal loophole that allows insurers to reject claims for workers who have been made totally and permanently disabled, so long as the claimant hasn’t lost limbs or sight.
A world-first data project conducted by ASIC and the Australian Prudential Regulation Authority (APRA) found that almost one in three people with a total and permanent disability policy through Suncorp’s super fund had had their claim denied. This was double the industry average.
Hong Kong insurance giant AIA Group, one of the largest insurers for super funds, knocked back almost one in five disability claims, The Australian reported. And it took Westpac almost nine months to process disability claims.
ASIC will also target super funds that take a long time to review an insurer’s decision, “for example, due to infrequent board or committee meetings”.
“ASIC expects trustees to take a more active role throughout the claims process, from claim lodgement to decision review and possible complaint,” The Australian reports.
About 12 million Australians hold insurance – for life, total and permanent disability, and income protection – through their super fund. About 80 per cent of policies provide the cover automatically.
Insurance premiums collected by the industry reportedly jumped 35 per cent in the three years to 2017, and total more than $9 billion a year. The Productivity Commission found that hefty life insurance fees could reduce the retirement balances of low- and middle-income workers by $85,000 to $125,000 over a lifetime.
New legislation gives watchdogs the power to take civil penalty action against super trustees for breaching their obligations to members, including the duty to act in members’ best interests.
Superannuation Consumers Centre acting director Xavier O’Halloran says some life insurance policies sold by default as part of people’s superannuation are failing to protect people and their families.
“Life insurers and super funds have been treating our insurance like a magic pudding, hollowing out policies to give them a veneer of affordability,” he said.
“To date, there has been no holistic approach to figure out the needs of people who can no longer work due to disability. Instead we’ve had a mix of overlapping public and private schemes with no thought to what is the most efficient and, importantly, equitable way to look after people.”
Do you have a life insurance policy with your super fund? Do you believe you are getting value for money?
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