Senior regulators have urged the superannuation industry to toughen standards for disclosure, engagement and communication with fund members around default group insurance, prompting a rebuttal centred on the limitations of disclosure and regulation.
Speaking at the 2017 Conexus Financial Group Insurance Summit in Sydney on August 29, Australian Securities and Investments Commission (ASIC) senior executive leader for investment managers and superannuation, Gerard Fitzpatrick, argued that it was the responsibility of insurers and super fund trustees to ensure that the “provision of the services they put out to their members is appropriate, targeted and relevant to their needs”.
Australian Prudential Regulation Authority (APRA) general manager Adrian Rees agreed that when it comes to disclosure, information should be provided to members “throughout the process”, not just upfront.
Fitzpatrick pointed to an ASIC report released in June 2017 that found the industry could improve on a number of areas, particularly in disclosure, claims and complaints handling, and default.
“Keeping members updated [with] appropriate forewarning of changes in insurance, including cover ceasing, will help minimise the likelihood of unpleasant surprises to members and allows them to take…alternative actions if necessary,” he said.
Fitzpatrick said the corporate watchdog recognises group insurance within superannuation is often a “very cost-effective option” for fund members, but noted it can be complex and difficult to understand, as it involves technical policy documents with conditions and exclusions that might not be written clearly.
Rees said the APRA has invested a large amount of time into group insurance and although the industry has improved, there is much more to be done, especially in pricing and product design.
“We still see some products with complex definitions, which arguably has led to some of the difficulties the market has faced in recent times,” Rees said. “We would [also] highlight the need for insurers and trustees to [have] a strong mutuality of understanding about what claims will be paid and how more difficult situations will be dealt with.”
ASFA boss bites back
Association of Superannuation Funds of Australia (ASFA) chief executive Martin Fahy disagreed with the financial regulators’ assessment on disclosure and said people put “blind faith” in its ability to keep members informed, when, in fact, doesn’t necessarily do that.
Fahy also argued that Australia become “an over-regulated society”, where people “bully” insurers into settling claims or risking damage to their reputation.
He admitted the industry is facing a number of problems the Insurance in Superannuation Working Group (ISWG) is working to address, such as balance erosion, duplicate balances, the handling of claims and complaints, and member communication and engagement. However, he warned the industry and the regulators not to rush into mass personalisation of the group insurance industry because it would “expose the public purse to a potential tsunami of underinsurance”.
“Please be very careful that in the search for some sort of individualistic optimisation of premiums and covers, we don’t leave large numbers of individuals exposed,” Fahy said.
Financial Services Council (FSC) policy manager of life insurance Nick Kirwan said it was natural to expect scrutiny from policymakers; nonetheless, “we shouldn’t make changes to the system without considering what the unintended consequences might be”.
Kirwan also warned against moving to an opt-in model of group life insurance, arguing the take-up rate would be “extremely low”, resulting in reduced cover, and unaffordable premiums that would leave many Australians uninsured, thus potentially exposing their families to economic hardship.
Fitzpatrick and Rees welcomed the work of the FSC’s Life Insurance Working Group and the ISWG, while urging all funds to get on board with their efforts to deliver robust codes of practice across the industry.
The 2017 Conexus Financial Group Insurance Summit was produced with thanks to support from platinum sponsors AIA Australia and TAL Australia, and silver sponsor Swiss Re.