Superannuation funds are automatically classifying members as smokers triggering higher insurance premiums, the corporate regulator has found ahead of the Hayne royal commission probing the sector next week.

The regulator found while 70 per cent of all life insurance policies in Australia are held through superannuation funds, almost a quarter of members have no idea their fund provides insurance and 16 per cent do not know what insurance their super fund provides.

Despite the lack of demand, super funds are typically receiving rebate payments and other benefits such as corporate hospitality from insurance providers that are “not always disclosed”, raising concerns over conflicts of interest.

‘Unacceptable’ conduct

ASIC chairman James Shipton, right, seen with Treasurer Josh Frydenberg, has launched a four-year corporate plan that ...
ASIC chairman James Shipton, right, seen with Treasurer Josh Frydenberg, has launched a four-year corporate plan that includes a focus on super, insurance and the financial service sector.

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The Australian Securities and Investments Commission’s review of 47 super trustees released on Friday found that the funds received $28 million in rebates from insurance companies.

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“Rebates are typically paid when the insurance claim levels for the fund’s members are less for a period than a benchmark agreed with the insurer,” the ASIC report finds. “Do trustees minimise member claims so as to receive rebates?”

ASIC found about 9 per cent of super trustees had defaulted all their members as “smokers” in the absence of contrary information while other funds are providing insurance cover that cannot be used.

ASIC said the conduct was “unacceptable” given only around 14.5 per cent of the adult population smoke daily and warned that super trustees may be in breach of the law.

“Retirement benefits can be unfairly eroded by insurance premiums as a result of inappropriate insurance arrangements such as defaulting members as smokers in the absence of information about the member’s smoking status or providing insurance cover that cannot be used,” ASIC’s Insurance in Superannuation Report released on Friday found.

About a quarter of people don't know their super fund provides insurance.
About a quarter of people don’t know their super fund provides insurance.

ASIC hits back

The regulator has been scrambling to get on the front foot ahead of next week’s royal commission hearings into insurance after it and APRA came under fire during last month’s hearings into superannuation.

Life insurers including AMP, ClearView, CommInsure, Freedom Insurance, REST and TAL will appear before the commission over the next fortnight with Clearview’s chief actuary and risk officer Gregory Martin slated as Monday’s only witness.

The regulator launched legal action on Thursday against NAB’s wealth management arms over the fee for no service scandal.

On Friday, ASIC’s new chairman James Shipton also launched a four-year corporate plan that includes a focus on super, insurance and the financial service sector, particularly on culture and governance.

The regulator is being beefed-up with $70 million in funding, extra powers and the appointment of former New Zealand regulator and current Tabcorp general counsel Sean Hughes and former Equipsuper chief executive Danielle Press, in addition to new commissioner Daniel Crennan QC.

Cold calls

The ASIC report into insurance provided by super funds also found major failings with the complaint handling process.

Almost a third of trustees took more than 90 days on average to resolve complaints about insurance last financial year.

The explosive report comes hot on the heels of ASIC’s report into life insurance that warns about high-pressure selling tactics, including “cold calls” where vulnerable consumers are pushed into products they do not want or need.

“ASIC will be focused on ensuring that members do not experience adverse outcomes arising from poor complaints handling or inappropriate defaults,” ASIC deputy chairman Peter Kell said on Friday.

“It is essential that trustees meet their obligations to deal with consumer complaints about superannuation in a timely manner and provide reasons for decisions as required.”

The regulator said it would be consulting on greater transparency about complaints handling ahead of the Australian Financial Complaints Authority commencing operations in November.

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