Industry super fund REST filed a breach report with the corporate watchdog during the insurance round of the Hayne royal commission, owning up to 184 potentially criminal instances when it may have inadvertently breached superannuation laws.
REST’s confession to ASIC emerged during closing comments, when counsel assisting left it open to Commissioner Kenneth Hayne to find REST had engaged in multiple acts of misconduct, along with conduct falling below community expectations in the provision of insurance products to its members.
The potential charges against REST were part of a long list of offences by insurance companies that counsel assisting Rowena Orr and Mark Costello documented.
REST’s breach report claimed 184 separate cases where it had failed to provide reasons for a decision in response to a complaint about the payment of death benefits, in possible contravention of the Superannuation Industry (Supervision) Act.
Other potential beaches were uncovered during the hearings as well. Costello attributed these to inadequate systems that were too reliant on hard-copy claim forms and were, therefore, at risk of human processing errors. The systems also were not capable of detecting changes in employment status that could render members unable to claim on policies for which they were still paying.
REST may have engaged in misconduct when it continued to deduct insurance premiums from members who were no longer covered because their employment status changed or they fell below the minimum balance threshold, Costello said.
In a case study illustrating this problem, a REST member became totally and permanently disabled five days after his cover lapsed, due to ceasing work. REST was not aware the member was no longer working and continued to deduct premiums until it received a claim for total and permanent disablement. The TPD claim was denied but REST refunded the premiums that had been paid after the member’s employment ceased.
REST may also have failed to do everything reasonable to pursue an insurance claim for a beneficiary, amounting to misconduct, Costello said. This was illustrated by a case study of a member who became paraplegic in May 2012 after falling from the fifth floor of a building.
The woman submitted a TPD claim to REST in January 2014 but it took REST six months to provide the claim to insurer AIA. The insurer accepted the claim and in November 2014 transferred a $108,000 payout to REST. But in December, REST refunded the payment to AIA and emailed the insurer requesting it review its decision, as it found it had made an administrative error in not realising the woman’s last employment date.
Under questioning during the insurance round, Lachlan Ross – a project specialist in the REST operations team – stood by REST’s decision in this case.
“Mr Ross considered that it was appropriate for REST’s administrator to have acted in that way, despite REST’s obligation to do everything that is reasonable to pursue an insurance claim for the benefit of a beneficiary if the claim has a reasonable prospect of success,” Costello said.
REST also came under fire for its definition of totally and permanently disabled, which included three distinct requirements: a three-month absence from work, significant injuries, and the inability to perform at least two activities of daily living.
The fund had declined the TPD or death claims of 224 members based on employment status requirements, including the three-month absence and needing to have been in “gainful employment” for the 13 months before the incident.
REST was also criticised in relation to its default income protection insurance cover, which unemployed members could not claim. Ross was not aware of any systems REST had that could detect and stop deduction of, income premiums for unemployed members, Costello said, meaning members would be paying a premium for a policy on which they could not claim. REST declined 37 income protection claims due to this requirement in the last five years.
In addition to these possible instances of misconduct, REST may have engaged in conduct falling below community standards and expectations in several respects, Costello said.
This included: failing to communicate with members about key exclusions such as the prescribed minimum balance exclusion in annual statements; continuing to deduct premiums
from members who were no longer covered; and failing to have sufficient systems in place to detect when a member was unemployed and at risk of losing cover.
“The community would expect that a superannuation fund’s systems would be capable of detecting when a member is in this position, even absent notification from the member,” Costello said.
REST said in a statement it “welcomes recommendations from the commission that enhance insurance as an important part of superannuation”.
“REST’s most recent insurance design update included a number of changes to simplify our insurance product, policy wordings and rules,” the statement read.
Hayne is due to hand an interim report on the commission’s findings to the federal government this Sunday.