Super funds charged extra premiums after default ‘smoker’ classification

Seven superannuation businesses have been found to have been charging extra premiums after classifying new members as ‘smokers’ by default, according to the Australian Securities and Investments Commission (ASIC).

ASIC found that AMP, Colonial First State, Equity Trustees, IOOF (including OnePath), Intrust, Netwealth, and Suncorp between 2017 and 2020 had been assigning ‘smoker’ status to members in specific products unless the member took active steps to opt out of the categorisation.

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Following engagement with ASIC:

• All seven superannuation businesses stopped charging new members life insurance premiums at smoker rates by default;
• All seven superannuation businesses moved, or are in the process of moving, existing members paying premiums at ‘smoker’ rates by default onto non-smoker or blended rates; and
• Four superannuation businesses refunded or agreed to refund members for the extra premiums paid because of the default ‘smoker’ classification (refer Summary of remediation).

ASIC Commissioner, Danielle Press said, “Generally, insurance premiums for smokers are substantially higher than for non-smokers. Given the low prevalence of smoking among Australian adults, classifying members as ‘smokers’ for insurance offered through superannuation unless the member takes active steps to confirm non-smoking status is contrary to community expectations.

“Insurance in super is complex. Many Australians may not realise that default classifications can impact the price of their cover and therefore, reduce their retirement benefits. In light of the low smoking rate, merely providing disclosure and putting the onus on members to act is not enough to support good member outcomes.

“All trustees we raised these concerns with have ended this practice with new members. Many have decided to refund affected members, in part or in full, for the higher insurance costs. When planned remediation is complete, more than 5,000 members will have received more than $3.6 million in compensation.”

ASIC said if members believed they had been inappropriately classified as “smokers” they should approach their fund, or could contact the Australian Financial Complaints Authority for dispute resolution if they had complaints.