Paul Sainsbury, AMP group executive of wealth solutions

Despite a statutory requirement to attach insurance to all MySuper products, loopholes have caused AMP super members with these products to be left uncovered. In some cases, they learned this only when they got sick, the Hayne royal commission has heard.

A member’s wife wrote to AMP chief executive Craig Meller in December last year, saying the member was diagnosed with a serious medical condition and they had discovered to their “distress and horror” there was no insurance attached to his MySuper account.

The findings were among several that counsel assisting Mark Costello put to AMP’s head of wealth and chief customer officer Paul Sainsbury, during hearings at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Costello also asserted that members had been defaulted to smoker status, giving them much higher premiums, and that premiums had been deducted from dead members.

Costello asked Sainsbury if he was aware insurance should be attached to all MySuper products.

“Yes, except in circumstances where the trustee determines that is not appropriate,” Sainsbury replied.

It was not a mistake, Sainsbury said, because the customer was told about the insurance arrangement on a welcome call, and this call constituted opting out.

An investigation AMP has launched will explore the cases of about 1600 other members in the same situation, with an outcome expected in a month or two.

‘Delinking’ problems

Earlier in the proceedings, Costello asked Sainsbury about some problems that have come up during delinking – in which a member’s super is organised with AMP through their employer, but when the member resigns they opt to continue using AMP for their retirement savings.

One AMP Life member delinked in 2005 but in 2013 discovered he had paid an additional $72,000 in unnecessary premiums due to being classified as a smoker, and wrote to AMP to request it be repaid to him.

An email from the member’s financial planner described how the member sent a non-smoking statement and his premium dropped from $2600 a month to $1600 a month. The planner wrote: “He informed me that he ‘last smoked’ when he was 13 years old at Scouts.”

Internal emails showed staff describing AMP’s practice of not including smoker status in its annual statements as “unethical”. “[However] I don’t see why we should compensate this member based on his account balance over other members who were requesting the same thing with lower balances and were declined,” a staff member wrote.

Sainsbury disagreed it was unethical not to put the smoker status on the annual statement. “When a member delinks into [Flexible Lifetime Super], the welcome letter that they get on the first page contains an election for non-smoking to enable members to…receive the benefit of that lower premium,” he said.

The member’s request for the $72,000 refund was referred to the Superannuation Complaints Tribunal, then referred to AMP Life, which rejected the request. AMP staff said in internal emails AMP could not refund this member when it had declined “other members that may have requested the same refund due to their own negligence”. The customer complained AMP had sent the relevant letter to an address he did not specify.

Later it emerged AMP Life members were categorised into three groups: smoker, non-smoker and delinked. Costello asked if the smoker and delinked rates were the same, and whether this was misleading the member to believe there was another rate that didn’t exist.

Sainsbury disagreed. “I think it’s trying to outline that the factors included in the premium are matters other than just smoking. So it’s seeking to illustrate that point that the delinked members’ lives and the smokers lives are actually in a blended rate.”

He agreed it was “difficult to understand for a member”.

The topic moved to the charging of dead people, with AMP estimating it affected more than 3000 customers and brought in more than $900,000 worth of premiums.

Costello and Sainsbury looked at internal emails from 2016 in which the issue of premiums being charged to dead customers was raised; however, AMP didn’t start investigating the matter until April 2018.

“The relationship between the 2016 event and the 2018 event are not the same matter,” Sainsbury said.

The 2018 investigation began due to the cross-examination of Commonwealth Bank employees at the royal commission, he said, with AMP questioning whether the same thing could happen to its own members.

Sainsbury said in his statement AMP identified 4645 customers who had premiums deducted and not refunded after the member passed away, amounting to $1.3 million in premium refunds.

Earlier in the day, Lachlan Ross, service delivery manager for insurance at REST, answered questions about a former McDonald’s worker who became a paraplegic after walking off her balcony.

Her TPD claim was denied by group insurer AIA due to small print that said coverage ceases 72 days after working for a contributing employer. Another clause in the policy invalidates it when the balance falls below $3000. But her member statement still stated clearly a premium was being charged for TPD cover, entitling her to a lump sum payout in the event of total and permanent disablement.

Costello then turned to income protection insurance, which becomes void when the member is not employed but premiums are still debited.

“Do you think that, in those circumstances, income protection insurance becomes a junk insurance product,” Costello asked.

“I don’t believe it is…There will be cases where we have not been made aware of information where the benefit will not be paid but I don’t think that means it can be classified as junk insurance” Ross replied.

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