AFCA reveals systemic issues around insurance inside super
The Australian Financial Complaints Authority (AFCA) has revealed just how problematic recent Government changes to insurance inside superannuation have become with funds found to be falling short in informing members about their loss of default insurance cover.
The AFCA Systemic Issues in the current financial year suggesting the former Coalition Government’s Putting Members’ Interests First and Protecting Your Superannuation Package changes have given rise to significant system issues.
Worth noting, too, is the fact that the AFCA report suggests that there were no significant systemic issues around financial advice.
The AFCA report did not name the institutions involved, AFCA referenced “a financial firm [that] was unable to satisfy AFCA that it had complied with its legislative obligations to provide MySuper fund members with permanent incapacity and death insurance benefits”.
It also reference another “financial firm inappropriately allowing members’ default insurance to lapse”.
On the question of the MySuper fund members, AFCA said superannuation law requires firms to provide insurance benefits unless the fund member ‘opts out’.
“The financial firm did not provide MySuper insurance benefits to certain fund members and was unable to provide AFCA with records showing that the members had opted out. Without these records, AFCA was unable to validate that all members without insurance benefits had opted out of cover or that the fund had appropriately excluded members from these insurance benefits.”
“Throughout the investigation, the financial firm engaged with AFCA on the issue but was unable to readily access and declined to provide relevant records, saying that to locate and access them would come at significant cost, and require extensive time and resources. This raised further concern about the financial firm’s record keeping.”
“Given the potential scope of the issue under investigation and the lack of available records, we referred the systemic issue to ASIC and APRA to take action as appropriate.”
With respect to allowing default insurance to lapse, the report said “The firm didn’t tell members that they could retain default insurance cover by either increasing their account balance to at least $6,000 or completing and returning a form electing to continue the insurance cover”.
“This was in breach of its obligation to provide an opt-in opportunity to members before cancelling default insurance cover. The issue arose from compliance concerns over the treatment of partially subsidised plans and was limited to members of a corporate plan which provided partially subsidised cover. The financial firm conducted a review and found only a small number of members had been impacted. The financial firm remedied this by developing processes and procedures to prevent the reoccurrence of the issue,” the AFCA report said.
Yet another LNP, Frydenberg, O’Dwyer, Roberts & Hume complete stuff up.
The rushed nature and mad cancelling of Life Insurances was absurd.
Even trying to get funds to keep Life Insurances for clients involved multiple reports of who was going to be affected, multiple forms, multiple requests to keep Life cover in place. Because it was all so rushed.
An absolute shambles.
Great job LNP = NOT, what a crap show the LNP gave us for 10 years.
I was warning at the time there would be lawsuits around this. Bring ’em on! I only wish the politicians involved were able to be personally sued for their stupidity.
Prospects are now approaching me who were too sick to read their emails at the time, or who moved and weren’t getting the notices from super funds….
Yet the government and Levy think we should let the same super funds provide “good” advice to clients with no consumer protection. What could go wrong?
The time is fast approaching for the government to dictate to the NFP funds the nature of their default death/TPD coverage and income protection coverage. Take the PSS AP, the super fund for about 140,000 Commonwealth public servants. It’s the only super fund that I can find that has a 24 month qualifying period on it assessing of a TPD benefit. Yet most public servants are blissfully unaware of this severity in their coverage.
Then there’s the issue of decreasing default cover where in many cases the cover starts to go downhill after age 37. Again that is not publicised to the members of the fund, other than if they take the time to read the “insurance brochure”. It’s not a PDS!
If the NFP funds are going to continue to insist on offering default death and TPD cover without underwriting then there needs to be a minimum standard standard, so that clients can actually know what they’ve got if they bothered to look, and heaven help us compare. If it’s good enough for funds like REST, which to be highly unfair probably does not have a sophisticated membership base, to offer reasonable quality IP coverage, compared to that being offered to PSSAP members, then those minimum standard should be dictated by government.
Let’s see what a mess APRA can make of that