Superannuation fund trustees and executives will now know how financial planners felt after being vetted by the regulator, with the Australian Securities and Investments Commission (ASIC) finding significant shortcomings in the way fund handle insurance within superannuation.
In a report issued on Friday, ASIC detailed the findings of its member experience in superannuation project and was harsh in its overall judgement, referring specifically to “a lack of adequate upfront and ongoing disclosure to members about insurance coverage” and “the use of inappropriate defaults when transferring members between different divisions of funds”.
The ASIC report also found shortcomings with respect to claims and complaints-handling including poor disclosure about claims and the processes members must follow and the failure of trustees to provide adequate written reasons for decisions in relation to complaints.
Commenting on the report findings, ASIC deputy chairman, Peter Kell said the regulator expected superannuation trustees to take a consumer-focused approach and make their disclosures as effective as possible.
“It is not enough for trustees to mention circumstances in which cover might change upfront, as disengaged members will almost certainly not recall that possibility many years later,” his public announcement said.
It said ASIC had also found that some trustees might be using inappropriate defaults in dealing with their members.
“In some cases, where trustees have moved members within a fund, trustees are treating members as ‘smokers’ for the purposes of calculating their insurance premiums without knowing whether the member smokes or not. This can result in a higher premium for the member, which would be inappropriate given the low and decreasing levels of smoking among members of the public.”
‘Inappropriate defaults can be adverse to consumers, as they are unlikely to notice the change in status that has been applied to their member account and take action to fix the issue,” Kell said. “We are taking follow-up actions with funds about the issue of defaults.”
He said ASIC had noted that the superannuation industry is currently considering insurance issues through the Insurance in Superannuation Industry Working Group (ISWG) and expected the findings in the current report would be considered by the ISWG.
The findings of the report would also inform two of ASIC’s compliance projects which are underway in superannuation for 2017, ‘Employers and Super’ and ‘Insurance in Super’. In particular, the deeming by default of members as “smokers”, and the associated cost of additional premiums, would be examined to see how widespread the practice is.
‘We intend to make public the results of our 2017 project work. Now is the time for trustees to consider whether their practices are in the best interests of members, as well as whether their members are adequately informed of decisions affecting them,’ Kell said.
