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ASIC: insurance in super improvements


The Australian Securities and Investments Commission (ASIC) has released results of its recent review on the progress by some super trustees to improve arrangements for life insurance in their super funds. The review was conducted as a follow-up to issues first identified in 2019, when ASIC found that some super trustees offered insurance that unnecessarily erodes a member’s retirement balance, inappropriate coverage of insurance due to restrictive definitions and exclusions, and unreasonably onerous or lengthy claims handling processes. Overall, the review has concluded that while the changes observed are a positive step, trustees need to continue improving how they monitor and respond to those risks.

To find out whether improvements had been made in the industry, ASIC used its compulsory information-gathering powers to examine the actions of 15 selected trustees. In total, approximately three million super accounts in these trustees’ funds had death and/or total and permanent disability (TPD) cover, and approximately 800,000 accounts had income protection (IP) cover at 30 June 2022. This information was further supplemented with industry-level data from the Australian Prudential Regulation Authority (APRA) and the Australian Financial Complaints Authority (AFCA) to gauge the overall level of improvement. 

In terms of restrictive TPD definitions previously criticised by ASIC as not meeting the needs of a broad range of members, this time around the regulator found that out of the 15 trustees, 12 had either amended the restrictive definitions or had changed eligibility criteria whereby claims were reviewed under an “activities of daily living” (ADL) definition. The remaining three trustees were in the process of making these changes. ASIC noted that across the super industry, the share of TPD claims assessed under an ADL definition has fallen to 1.3% and is likely to fall further as the changes take effect. 

In relation to claims handling, ASIC found that most trustees had made changes to improve their claims processes, including making it easier for members to lodge claims and providing clearer communications about what to expect during the process. In addition, all 15 trustees are reviewing declined claims decisions to test whether their insurers have correctly applied the terms of the insurance policy and most trustees are regularly monitoring their insurers’ compliance with industry codes. 

Although there is an overall improvement in claims handling, ASIC’s report highlights that only 10 trustees also analysed withdrawn claims and complaints to identify and address frictions in the claims handling process. 

The last area examined by ASIC in the review was improvements in communications to help fund members understand their insurance and make appropriate decisions. It found that most of the 15 trustees have made changes to member communications in response to complaints analysis, and have taken some steps to more clearly explain when and how different terms and conditions apply, including by adding explanations to insurance guides and annual insurance statements. 

Overall, the report concluded that while the changes observed are a positive step towards reducing risks of members receiving insurance that does not meet their needs or paying for cover they cannot claim on, trustees need to continue improving how they monitor and respond to those risks. ASIC says it will continue to work closely with APRA to drive better practices in the super industry, and will use its regulatory powers where trustees and insurers are not complying with their obligations.