Lawyers warn on auto-consolidation and insurance within super

The Productivity Commission (PC) has been cautioned against the auto-consolidation or auto-cessation of insurance arrangements with respect to people holding multiple superannuation accounts.

The Australian Lawyers Alliance (ALA) has warned that such a move could prove significantly prejudicial to those holding the superannuation accounts.

The ALA has used a submission to the PC said it was concerned about regulatory intervention to automatically consolidate members’ duplicate accounts because it believed “automatic events that affect or remove insurance provided as a part of superannuation have the potential to dramatically reduce the utility of such insurance”.

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“It is not good public policy to automatically consolidate into a fund that provides life or TPD [total and permanent disablement] insurance that is inferior in its terms, such as those with the sub-standard terms or less adequate in its quantum to the cover being relinquished,” the submission said.

It said the same principle applied to any automatic cessation of insurance in an inactive fund: “that is, if auto-cancellation leaves the member with an inferior or less adequate cover than their prevailing fund, they are being inappropriately disadvantaged”.

The ALA submission said there were many circumstances in which contributions inactivity or low contributions activity occurred, such as: illness, pregnancy, extended leave, overseas work, seasonal work, underemployment and unemployment.

“In such situations, some policies provide for automatic consolidation or cessation of the policy, without adequate notice to the policy holder,” it said. “The ALA believes that any auto-consolidation or auto-cessation must be subject to a No Disadvantage Test. That will necessarily require a rating and comparison of definitions, and a system to ensure that a member being consolidated does not end up with reduced insurance coverage.”

The ALA submission said there also needed to be robust practices in place to notify policy holders of proposed auto-consolidation or auto-cessation, with practical information as to the risks of losing cover, to allow them to opt-out of any such automated event.




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Hrmmm if there are less insurance policies held under Super, then that equates to less Lawyers fees when they hawk for clients. Of course Lawyers don't want the system changed, because it would cut into their gravy train.

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