Complaints about inactivity cancellations: the five things you can do to prevent them

March 2023
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In the two-and-a-half years since the introduction of the requirement to cancel death and disability cover for inactive members (SIS s 68AAA), a slew of complaints has been made by disappointed members and their descendants.  In total, we have counted more than fifty AFCA claims and at least two court cases.  Interestingly, only one of the AFCA claims was successful, and only one of the two court cases.

In the two successful cases, the relevant trustee acted somewhat carelessly.  In the first, AFCA determined that the trustee knowingly issued the required election notice to an incorrect address and made no further enquiries (although AFCA also found that the member herself contributed to her loss).  In the second instance, the trustee sent the relevant notice by email despite not having the member's consent to use email.

Despite the low success rate, there are clear lessons that should be born in mind when cancelling cover for inactivity in the future.  First, be sure that the rules of the fund are followed.  Some rules still require notices to be delivered by post rather than by, say, email.  If your rules do not reflect your practice, consider getting advice on necessary amendments.  Second, be sure that the relevant insurance policy reflects the legislative scheme on inactivity cancellations.  This should be the case for most, if not all, policies now, but it's worth double-checking.  Third, avoid using email as the preferred method of notice unless you're sure the relevant member has consented to it.  Consent doesn't have to be express but, if it's not, extra caution will be necessary.  It might be safest to get some advice if you're not certain.  Fourth, where you have some doubt about the validity of a member's last known address (e.g., where the ATO has notified you of a different postal address but you've not received returned mail from the member's existing address), try other available communication methods before proceeding to cancellation (e.g., landline or mobile phone).  Lastly, make sure you're confident in the service provided by your mailhouse (external or otherwise), both for the purpose of sending notices and for receiving elections.  Typically, tribunals expect at least some evidence of the process used to send notices or receive elections – so check that your mailhouse can provide necessary verifications (particularly if you don’t retain copies of each notice you send).

While the legislative regime was designed to require communication with members prior to cancellation (and tribunals recognise that feature), trustees should nonetheless be prudent before cancelling valuable cover.  Prudence might just save you some costly, lengthy disputes.

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