The Bill to remove default insurance cover for under 25’s and for low balance accounts has passed the Senate with a carve-out for emergency services workers and those in dangerous occupations.
The government has negotiated the Putting Members First Bill with crossbenchers who were concerned about the loss of valuable insurance cover for workers in high-risk occupations who may not be able to get cover elsewhere.
However, by limiting the carve-out to particular occupations, and not to funds or industries as a whole, the Bill creates significant practical difficulties for trustees.
Under the Bill, a trustee can seek an exception for members in the “riskiest” 20% of all occupations. If the exception is certified by an actuary, a fund can continue to offer opt-out insurance cover to members under 25 or with account balances under $6,000 but only to those who are (and maybe remain) in dangerous occupations.
As all funds would have members with a mix of occupational ratings, this will create a problem in assessing whether particular members are in “dangerous occupations” and whether that status changes before they reach 25 or their accounts hit $6,000.
Funds may face complaints from members who were inappropriately excluded from dangerous occupation default cover or who had insurance premiums deducted when in fact they were not eligible for such cover.
Members must be notified if their occupations are classified as dangerous and be given the opportunity to opt out of cover. However, it is questionable how much protection this gives to trustees who may wrongly classify individual members. Senator Hume when queried about this, said she was advised it would not be a logistical problem but that remains to be seen.
These problems would largely have been avoided if industry-wide exemptions were allowed. Such exemptions could still have been subject to the rigor of actuarial certification and APRA oversight to maintain the integrity of the changes. One Nation put up such an amendment, but the government did not accept it.
The Bill also resets the timelines for trustees to communicate to existing members whose cover will be switched off unless they opt to continue that cover. Funds must now identify members affected by the changes by 1 November 2019, write to them by 1 December 2019 and switch off their default cover on 1 April 2020, unless they elect to continue.
Of the timelines, the most problematic is switching off cover on 1 April 2020. Many members who receive letters by 1 December 2019 will have forgotten all about it over the Summer break and will not remember to make an informed decision by 1 April 2020.
Funds should commit to reminding members of their option before the cut-off date in the government and the regulator should mount an education campaign to inform members of their rights.
To avoid a repetition of the problems experienced in switching off inactive account cover in July 2019, appropriately worded (and agnostic) template notification and election letters should be developed between ASIC , industry and the consumer movement.