Loss of insurance for low-balance accounts could cause legal headaches

5 June 2019

Superannuation funds could face legal difficulty once group insurance for inactive accounts is switched off on 1 July, as the Protecting Your Super reforms come into effect, as members who were unaware they were losing their cover may seek compensation should they need its protection.

TAL’s general manager, group life product and pricing, investments and retirement incomes, Darren Wickham, labelled the problem as a “sleeper issue” with the legislation at an Actuaries Institute media lunch yesterday, warning that members may seek legal remedies if they ended up needing group life insurance cover.

He anticipated there could be as many as 4,000 – 5,000 claims made by such members in the next 12 months, and said that the issue of whether the Government, the super fund or the individual should pay in these situations hadn’t been thought out.

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This tied in with a broader concern in the insurance and superannuation industries that many members who didn’t want to lose their group cover could end up doing so under the reforms. While superannuation funds were contacting people who would be without cover from 1 July, problems such as address changes or members simply not reading fund communications meant some mightn’t realise.

Wickham noted that of the four million inactive account members so far notified by funds regarding their cover, a large portion of 10 to 15 per cent had opted to continue receiving the insurance.

While he believed that the reforms were, overall, a positive development, as “people don’t need insurance eroding their [super] balances”, there were issues such as this that could prove problematic in their rollout.

At the same lunch, Wickham said that a rise in mental health claims was another key issue insurers were facing, with total and permanent disability (TPD) benefits claims substantially growing at a faster rate than the prevalence of mental illness.

Claims for lump sum payments in these situations caused problems because of the difficulty of determining whether mental illnesses were permanent, and as their rise could then drive premiums up.

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I don't think these people with less than $6K in super will be calling lawyers spending money on trying to get the insurance back. This is just scaremongering. TAL will of course lose some business out of this being the underwriter for a few super funds.

No, but the beneficiaries of their Estate might have a go.

If the beneficiaries were that interested you would think they would make sure the life insured opts in. This has been legislated, so I cant see how the funds or the insurers themselves can be held liable or be the subject of court action over this. Im sure the government would have had high level legal advice before putting the legislation through as they usually do.

I am sure the Government has covered it's xxx on this - that is what they are good at.

The problem with the legislation is the time frame. If you open a new account now with $5k in it and get some default insurance, then don't contribute anything further, the super fund will send you 4 warnings over the course of the next 16 months, telling you that you need to opt in or make a contribution to retain the insurance. So why is it that right at the beginning of the legislation, you get one warning, most of them were issued in April or May, and then you lose it. Don't happen to get the letter in the post, bad luck, your cover's gone. Happen to be overseas on an extended trip and don't see it in time, bad luck, your cover's gone.

Stuff like this and the ridiculous FASEA exam timeframe are just beyond belief.

I doubt you have much experience in the industry or realise in claims for those unstable employees who have little and then there is a claim. Life changing result's for the family. I did one with 14 super funds and poor spouse only got 1.2 mil which certainly changed her life. I guess you dont understand dependents and family dont fair well asking the insured to keep their life cover or discuss it? "none of your business"

Ten, I have experience with claims and the industry, however I also believe people need to take ownership of this issue. Your example of 14 different funds is exactly why this legislation was brought out in the first place, so that the funds can be consolidated and people can take a little more ownership of the situation including what insurances they have and actually require. This is where we as advisers need to be helping too. Of course its a hard conversation to have between the life insured and the beneficiaries, however its one conversation that people need to have no matter how hard it may seem. If a husband and wife cant discuss keeping life insurance on themselves then maybe there are more issues in the relationship itself. Its not about experience or understanding, its about getting people to take a little more ownership.

"If a husband and wife cant discuss keeping life insurance on themselves then maybe there are more issues in the relationship itself.

You are assuming that every relationship in this country is exactly the same as yours. I have several very wealthy clients where the husband and wife 100% manage their own finances with both contributing to the running of the house. How they became wealthy is beyond me but it works for them.

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