Cbus pays price for dragging its feet

ANALYSIS

Big construction industry fund, Cbus is paying the price for dragging its feet on fixing the speed at which it dealt with insurance claims.

The price is that the Australian Securities and Investments Commission (ASIC) has initiated civil penalty proceedings against United Super Pty Ltd, the trustee of Cbus, alleging that from September 2022 to November 2024, it failed to act efficiently, honestly and fairly in the handling of claims for death benefits and TPD insurance.

The ASIC action should not have surprised Cbus. Both ASIC and the Australian Financial Complaints Authority (AFCA) had been signalling for more than a year that prompt handling of insurance claims had become an issue for a number of superannuation funds.

ASIC alleges in its Federal Court proceedings  that despite receiving reports from its third-party administrator, Australian Administration Services Pty Limited, United Super failed to properly assess the scale of the impact to members and claimants.

It said the financial loss has been estimated by Cbus to be $20 million to members and claimants.

Cbus immediately followed ASIC’s announcement of its court action against the fund by saying it was sorry.

“Cbus Super is sorry that delays have been experienced in the processing of insurance claims made by our members. Regrettably this has added to the distress of members and their families.

“We apologise to our affected members and their families without reservation and promise to do better.

“Cbus has implemented a number of measures that are reducing delays and is committed to further improving management of insurance claims.

“Cbus has established a compensation program for affected members which is being implemented now.

Cbus has been cooperating with ASIC during its investigation and notes that ASIC has today commenced proceedings in the Federal Court. Cbus will invite ASIC to engage in alternative dispute resolution processes to avoid protracted litigation,” the superannuation fund’s statement said.

ASIC Deputy Chair Sarah Court said, ‘Delays in claims processing like those alleged by ASIC cause real harm to families who may be relying on the payments to meet critical expenses. This adds to difficult personal circumstances, whether grieving for a loved one or dealing with severe injury or illness. The additional anxiety and pain these delays caused compounded the issues these members and their families faced.

‘By late 2022, more than 6,000 Cbus members and claimants had their payments delayed by more than 12 months. Extraordinarily, that equates to more than 50% of Cbus’ total claims at that time. We allege they are yet to completely rectify these issues.’

‘Trustees cannot outsource accountability when it comes to claims handling. It is the trustee’s responsibility to ensure there is adequate oversight of their systems and to prioritise the resources necessary to deliver the services they have promised to their members.’

ASIC alleges that even when a response was undertaken by United Super in October 2022, this response was inadequate and insufficient to resolve the issue.

It is further alleged that despite the matter being brought to the attention of the Cbus Risk Committee between November 2022 and February 2023, the trustee of Cbus failed to report these issues to ASIC as required within 30 days of becoming aware of them.

Finally, ASIC alleges that United Super failed to take all reasonable steps to ensure that when the matter was ultimately reported to ASIC in August 2023 and September 2023, those reports were not materially misleading when they reported the contravention was not ongoing, among other matters.

‘We allege Cbus failed its members and claimants at their most vulnerable time, and we are taking this case to protect all those vulnerable Australians trying to access the financial support to which they are entitled. The systemic failure by superannuation trustees to deliver essential member services in a timely manner is a key priority for ASIC and we will continue to take action to hold trustees to account,’ Ms Court said.

ASIC alleges that Cbus may have contravened the following provisions of the Corporations Act:

• ss 912A(1)(a) & (5A) by failing to act efficiently, honestly and fairly in the handling of its members’ claims for death benefit payments and TPD insurance payments;
• section 912DAA(1) and (7) for failing to lodge a reportable situation report within 30 days of becoming aware of a reportable situation; and
• Section 1308(5) for failing to take reasonable steps to ensure the breach report lodged on 5 August 2023 was not false or misleading in a material particular.

ASIC is seeking penalties, declarations, adverse publicity orders and orders for compliance matters to be implemented.