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Dodgy insurance in super practices busted in ASIC review

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By mbrownlee
September 07 2018
2 minute read
5 View Comments
dodgy insurance, ASIC review, magnifying glass
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A review by ASIC into insurance in superannuation has revealed poor complaints handling time frames, with some trustees taking more than 90 days to resolve complaints, and identified conflict issues with certain rebates received.

ASIC has released a report on the provision of insurance cover through superannuation which examined insurance cover across 47 superannuation trustees.

The review focused on insurance claims and complaints handling, disclosures about insurance, insurer rebates paid to trustees and whether members were defaulted into demographic categories that resulted in higher premiums.

 
 

The information in the review about insurance handling was collected from 47 trustees during the 2015/16. A total of 41,101 claims were received by trustees collectively.

Out of all finalised claims including withdrawn claims, 70 per cent were accepted in full. When withdrawn claims were excluded from finalised figures, 88 per cent of claims were accepted in full. Around 8 per cent of all insurance claims were declined, 1 per cent were accepted in part and 20 per cent were withdrawn.

The survey results indicate that industry funds receive more claims per member in comparison with retail funds.

The review revealed poor complaints-handling time frames and practices, as almost a third of trustees in the review took more than 90 days on average to resolve complaints about insurance in 2017-18.

Under complaints handling requirements for trustees of superannuation funds in s101(1) of the SIS Act, trustees of superannuation funds are required to take all reasonable steps to ensure there are arrangements in place to consider and deal with complaints within 90 days, the report noted.

For death benefit complaints, trustees of superannuation funds are required to give written reasons for decisions on complaints when giving notice of the decision and if no decision is made within 90 days, to provide reasons for this on written request from the complainant, said ASIC.

For all other complaints, ASIC said they should provide written reasons for a decision on a complaint, or the failure to make a decision within 90 days, on written request from the complainant.

The results of the review indicated that in the 2017-18 financial year, 32 per cent of trustees finalised complaints in under 45 days, 36 per cent finalised complaints between 45 and 90 days, and the remainder took more than 90 days.

A detailed review of the complaints handling procedures of 18 trustees also indicated that the documented procedures of five trustees did not reflect the requirement to establish arrangements to provide written reasons for decisions relating to death benefit complaints.

The review also examined rebates and benefits received by trustees of super funds from insurance providers.

“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 report explained.

The report stated that these arrangements can raise conflict issues as there is potential for trustees to minimise member claims in order to receive rebates.

It also raises the question of whether trustees choose an insurer based on benefits the insurer provides to the trustee or those to the member.

The survey revealed that the rebates from insurers by the relevant trustees totalled approximately $28 million.

“In our work, we found that rebates or benefits from insurers to trustees were received in around 35 per cent of cases. These arrangements were not always disclosed. We found no evidence that rebates led to lower claims success for members,” ASIC stated.

The review also found that some trustees were still automatically defaulting members as “smokers” when transferring them to different sections of the same fund, resulting in higher insurance premiums payable by those members.

“We consider that defaulting all members to ‘smoker’ status on leaving their employer is unacceptable, particularly as recent data indicates that only around 14.5 per cent of the adult population smoke daily,” the report said.

“One trustee advised that it defaulted its members as smokers to ensure that members’ claims were not denied if they declared smoker status sometime in the future. We consider defaulting members as non-smokers and clearly communicating the consequences of not declaring smoker status, where applicable, a better practice.”

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Miranda Brownlee

Miranda Brownlee

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: miranda.brownlee@momentummedia.com.au

Comments (5)

  • avatar
    What about commissions generated on Industry super funds - member insurance premiums being passed to third parties rather than the super trustees eg Unions!!
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  • avatar
    Dodgy Insurance? How about dodgy reporting?

    Where is the reference to what super funds they investigated? Was this with retail, corporate or industry funds? Which sector had the worst experience for claimants?

    Which funds were the one's geting the rebates? It's long been said that the poor claims experience of members in Industry Super Funds has been related to trustees declining claims to ensure they get to participate in rebates/profit share/commissions
    0
    • avatar
      Read the report. Page 15 'We found no evidence that rebates led to lower claims success for members'... and if I recall, ASICs investigation in 2016 identified that the worst decline rates (37%) was BT LIfe - who don't insure any industry super funds.

      Don't let the facts get in the way of a good rant.
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      • avatar
        Ah yes Tony, probably like ASIC found no evidence against ISA to bring in front of RC (clearly they must be inhumanly perfect in every aspect?) and yet happily dredged crap from pre-FoFA to raise yet again against planners/banks. Or what about that highly "factual" (i.e. flawed utterly) report 413 by ASIC that led to LIF? Corruption is corruption and is not in the member's interests regardless of how much lipstick you put on your particularly ugly pig.
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  • avatar
    Notice either this article or the ASIC report fails to mention how many of these trustees are ISA, as we know that these groups have had these dodgy arrangements made in their interests and not members at all.
    0
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