ASIC has released a report (Report 529) of its findings from 2 projects examining experiences of superannuation members and the effectiveness of superannuation disclosures.
ASIC’s findings and expectations have significant ramifications for the industry, whether or not you agree with them.
The report contains some interesting conclusions relating to insurance disclosures and claims including:
- It is inappropriate to have certain insurance related defaults. For example, defaulting members to ‘smoker’ or ‘blue collar’ classifications where the trustee/insurer does not know an individual’s circumstances. ASIC states ‘Trustees should not presume that members smoke in determining their insurance premiums’ and cites an extraordinary example of an SCT matter involving a refund of $77,000 in insurance premiums charged (after a member was transferred to a personal division on ceasing employment) because it was assumed the member was a smoker, rather than a non-smoker.
- There are inconsistencies between insurance policies, PDSs and other disclosure documents, particularly in relation to articulating exclusions and limitations. For example, broad definitions of ‘hazardous occupation’ are not always clearly explained.
- There is too much reliance on disclosures in PDSs about when cover stops or changes. For example, disclosures in a PDS about cover ceasing when a member’s account balance drops to a certain level without any subsequent notifications or prompts that cover may or will cease unless the member takes steps to top up their balance.
- Issues caused by other disclosures (for example, in member statements) that indicate a member has insurance cover when in fact cover has ceased (for example, because employment has ceased), which in turn leads to denial of claims made by members who otherwise assume they have cover.
- There is poor disclosure about claims and complaints handling processes. For example, factors affecting claims (such as claims may be denied on the basis of non-disclosure of minor or unrelated mental illness) are not well explained. Sometimes it is not clear when the 90 day complaints handling timeframe commences.
- There is too much reliance on administrators (and insurers) to handle aspects of claims and complaints handling including confusion caused to members who sometimes are having to deal with the ‘third party’ directly. ASIC expects communications about claims to be copied to the trustee as well (this does not always happen based on death claims reviewed by ASIC).
- Adequate reasons for complaint decisions are not always being provided. For example, sometimes technical policy language is used. ASIC expects plain English be used.
There are also some incidental findings relating to the adequacy of disclosures in product dashboards, the adequacy of disclosures about a third party being responsible for calculators made available from a fund’s website, giving too much prominence to group branding, ‘unbalanced’ disclosure about consolidating super accounts, and the absence of any strategy to deal with vulnerable consumers (eg. indigenous members). ASIC also encourages trustees to make insurance policies publicly available via the website.
Some of the insurance related findings are worrying because they ignore the nature of group life cover. For example, ASIC has an expectation that members are notified when their cover ‘is about to’ change or cease, when (usually) the trustee will not be aware that an individual’s cover is about to cease or change. Default classifications in the absence of member details is also a fundamental aspect of group life cover. ASIC’s expectations in this area seem to flow from an overarching premise that trustee disclosures and services should be better targeted to the needs of members, including through increased analysis of member data, a consideration of behavioural economics and re-considering whether there is too much reliance on employer data. ASIC states ‘The timing of disclosures and the use of effective prompts (e.g. reminders) can influence their effectiveness. Superannuation trustees should give greater consideration to the timing, context and method of their communications to members. Information design should be consumer centric and based on what the member needs to know’. Necessarily, however, we think such expectations must be considered having regard to particular circumstances (including applicable insurance arrangements) and what a trustee knows (or can reasonably find out).
We also have some concern with ASIC’s statement that: ‘It is also important for trustees to be clear about the factors affecting claims. Feedback ASIC has received suggests that some claims may be denied on the basis of non-disclosure of minor or unrelated mental illness. Trustees need to make it clear to members that this information must be disclosed.’ Section 47 of the Insurance Contracts Act limits the ability of an insurer to deny a claim on the basis of a pre-existing condition. It does not allow a claim to be denied for an unrelated condition (whether it was disclosed or not). In any event, Trustees do not need to make it clear to members that this information must be disclosed if they have automatic cover under a group life policy, which is commonly the case in super.
It appears that the findings have resulted in ASIC requesting improved disclosure from trustees involved in the projects and ASIC’s reviews. ASIC states ‘We now expect all trustees to review their disclosures to ensure consistency between their policies, PDSs and other disclosure material, and to provide adequate notification of changes to or cessation of cover. Further, we expect all trustees to immediately review their default arrangements in insurance, particularly where members are being transferred between fund divisions without consent. Defaulting members as ‘smokers’ or ‘blue collar workers’ in the absence of information about member status is inappropriate’. However, ASIC indicates it intends to take further action ‘where we consider consumers are being poorly treated in relation to their superannuation’.
ASIC will also be considering the findings further in two current projects examining ‘Insurance in Superannuation’ and ‘Employers and Superannuation’.
To download the ASIC Report, click here.