Lawyers call for super insurance safeguards

Safeguards need to be put in place so that people are not denied insurance cover because their superannuation accounts are wrongly identified as being inactive, according to the Australian Lawyers Alliance (ALA).

In a submission filed with the Productivity Commission (PC), the ALA warned that for many members of superannuation funds who had significant medical history, obtaining insurance cover in superannuation might be their only hope of having a basic level of insurance cover.

“Accordingly, it is critical that there are appropriate measures in place before a member’s insurance cover can be cancelled,” it said.

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“In our experience it is not uncommon for superannuation funds to have an incorrect address or contact details for their members,” the ALA submission said. “Something more than merely sending mail should be required to ensure that all reasonable steps have been taken to warn a member before their insurance cover is cancelled.”

“In addition, while we believe it is good public policy to consolidate superannuation accounts when a member has an inactive account, it is also important to ensure that adequate protections for consumers are provided,” it said.

The ALA said it was well accepted that many superannuation funds across Australia have vastly different insurance arrangements.

“For many, a total and permanent disability [TPD] benefit is a single lump sum. One super fund we are aware of pays the TPD benefit in annual instalments over six years. Some other super funds do not pay a lump sum, but instead pay a long-term income protection benefit,” it said.

“If a fund member is transferred from one fund to another, there is a risk that they could suffer significant prejudice by losing valuable insurance cover and be left with an active fund account that has inferior insurance. An insurance product may be inferior due to a lower amount of insurance cover, more expensive insurance cover or inferior/harsher definitions and terms.”




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Typically, the Governments proposal and "unintended" (aka., not even considered in the first place) consequences of this monumental mistake in regard to the transition of so called inactive super accounts with insurance cover and low balances is negligent.
If a member has insurance cover in place, either Life/TPD or Income Protection and the Govt demand that fund is moved to the ATO with a total loss of all insurance cover and the member then needs to make a claim, how and where does an unauthorised transfer sit from a legal perspective when the financial support mechanism has been forcibly removed ? ie. the member or their family is now in a significantly worse off position and possibly dependent on Govt support...possibly forever.
The shortsighted and uneducated nature of this proposal and Kelly O'Dwyer's utter incompetence in her portfolio is negligent.

It would seem reasonable to me that "members of superannuation funds who had significant medical history" and for whom "obtaining insurance cover in superannuation might be their only hope of having a basic level of insurance cover." would also be the ones who would ensure that their details with those superannuation funds were up to date and that there was adequate funds in their account to prevent problems occurring.

It would also seem reasonable to me that individuals who understand the shortcomings of the system should rather be petitioning the government to include an insurance record in the superstream data and then the current superannuation fund could aggregate and report on all the insurance a member has - ensuring there is no unintentional insurance still in place and a member is aware of all the cover they have in place - and what it is costing them - now that would clearly show the value of the insurance they have.

What has also been shown to be true is that members act in self interest and trustees need to ensure that this is not to the detriment of the other members of the scheme. In the past many schemes offered "introductory cover" where, in addition to the default cover being provided, members could take up additional cover without requiring any underwriting evidence - what we are seeing now is that those people who took this option have mortality rates of 150% of those members who just took default cover - yet both groups are paying the same premium per $1,000 sum insured.

There is a need to draw a line in the sand and redefine what is appropriate and reasonable and to stop all the inappropriate practices - by insurers, by funds and by members - Trustees need to be aware and demonstrate they are doing this, only then can we expect that broad brush changes will not be required to keep the industry sustainable.

Unless the majority of small super fund balance members have a relationship with an adviser...and if that is their only business this is highly unlikely.....then many will be lethargic or uninformed of exactly what benefits they currently have or the benefits they may be forgoing until it is too late.
This is a matter of responsibility of the Trustees to ensure that no member with a small account balance and insurance cover attached is disadvantaged through losing that insurance cover without any form of authorisation from the member to agree to cancel the insurance or move the accumulated funds.
The other issue is around the subjective terminology of what is deemed to be a "disengaged" member.
Many people are disengaged from superannuation anyway, let alone the constant and relentless fiddling with the legislative parameters that govern superannuation....it is essentially boring for many of them, although that doesn't sit well as a justifiable reason why the Life/TPD and/or Income Protection Insurance cover is deleted from your account as a result of a transfer to another fund. If an adviser were to proceed with that strategy and not have considered or warned the member of the consequence of transfer or ensured that the insurance needs of the client were addressed and maintained they would be negligent.
But the Govt can enforce a transfer equivalent to a negligent adviser and it is the best interest of the member ?
This is wrong and as usual, grossly under considered.

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