This week’s Royal Commission hearings have brought life insurance into the spotlight, just as ASIC has completed its review of insurance in super – given that 70% of all policies are held through super funds, how will this affect your clients?
While the Commission is focusing on specific instances of misconduct within life insurers and super trustees, ASIC’s REP 591 takes a broader look at how the system operates – and how it can be improved.
The regulator reviewed 47 super trustees – representing 10.3 million members and $525 billion in funds under management – to determine their conduct regarding insurance claims and complaints handling, disclosures, insurer rebates and how members were allocated into specific categories.
From an advice perspective, the review is particularly timely given the looming consolidation of Australia’s three dispute resolution schemes – the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal – into the new Australian Financial Complaints Authority (AFCA).
What are the key findings of the review and how will they be incorporated into the AFCA regime?
Claims handling
ASIC found that consumers may be vulnerable at the time of making a claim with their trustee and may “experience financial and other stresses,” particularly in instances where claims processes are “unduly complex.”
The regulator said trustees should review claims handling processes, particularly with respect to “simplicity, timeliness and transparency” as well as “feedback mechanisms for trustee oversight in relation to the role of administrators and insurers.” In 2019, ASIC will examine whether these processes have been reviewed in the three years leading up to this deadline and test whether said reviews have resulted in “genuine improvements to consumers.”
Dealing with complaints
With regards to complaints handling, ASIC found two issues: first, that consumers have at times not received written reasons for a decision, limiting their ability to contest or escalate. Second, in instances where complaints processing took longer than 45 days, consumers experienced “financial uncertainty and other stresses.”
Addressing this, ASIC continued, will involve trustees ensuring that they provide written reasons for all complaints “even if not specifically requested,” and addressing how to improve the timeliness of their complaints handling if they’ve been found to have a history of taking longer than a 45-day average.
“After AFCA commences operation,” ASIC said, “ASIC will consult on new internal complaints handling requirements. For superannuation complaints, we will propose shorter timeframes for dealing with complaints and stronger obligations to provide reasons for decisions on complaints.”
Disclosure
In reviewing how insurance cover was disclosed to members, ASIC found two key problems – consumers were, in some instances, unaware of their cover ceasing and were therefore “unable to make a timely decision to take action,” especially if they needed to make a claim in the future.
On top of this, because of the complex and non-standardised definitions for total and permanent disability (TPD) cover, consumers may “find it difficult to compare TPD definitions … hindering their ability to select coverage appropriate to their circumstances.”
Remedying this will involve trustees focusing on “standardisation of concepts, cessation information, ease of engagement to vary or opt out of cover” and ways for consumers to use tools “other than text-based disclosure.”
Conflicts
In circumstances where ASIC found that trustees were potentially negotiating insurance arrangements based on “considerations other than members’ best interests,” the regulator said trustees need to improve their transparency concerning rebates and benefits received from insurers.
“This should not be burdensome,” ASIC argued, “because close monitoring by trustees of these payments or other benefits should be part of the trustee’s usual arrangements to deliver good member outcomes.”
Default transfers
The review found cases where trustees were being automatically categorised as smokers and blue-collar workers when they were being transferred from employer plans to personal plans. This led to higher premiums, which could potentially erode members’ savings by paying “premiums at rates that do not reflect their risk.”
ASIC will be seeking information from trustees that they’re making appropriate changes to solve the problem of members being automatically classified in the absence of other information. This will include changing arrangements for members currently paying premiums based on “inappropriate default settings,” communicating these changes and reviewing any possible remediation impacts.
Wrapping it up
It’s a positive step that super trustees are working closely with the regulator to ensure better transparency and claims outcomes for members, especially given that many of your clients will likely be holding policies within super. Any improvement in claims handling and disclosure is also going to make it easier for you and your client to make claims in the future.
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