It’s not every day that the sometimes opaque world of group insurance arrangements is discussed on talkback radio. But outspoken Coalition Senator Andrew Bragg took to Sydney’s 2GB radio on Thursday night to bring super insurance arrangements to mainstream attention – for all the wrong reasons.
“The super funds are dragging out the timetable to make the payments from the Super Complaints Tribunal [AFCA], also from the consumer advocate, and now from the regulator. But the government, I don’t think it’s pushing the regulator hard enough here,” he told shock jock Chris O’Keefe.
“I feel like we’re not getting anywhere. And until we see some heads on a spike, there’s not going to be any change.”
The comments come as the Liberal senator – described by one delegate to the Investment Magazine Chair Forum as a “professional grenade thrower” – is set to preside over a parliamentary inquiry into superannuation, with a major focus on group insurance arrangements.
Insurance claims handling has been listed by regulators ASIC and APRA as a priority for 2024 and among the most commonly heard matters raised with the Australian Financial Complaints Authority, the successor organisation to the defunct SCT.
The government has also rebuked funds and insurers for their role, with Minister for Financial Services Stephen Jones warning that group insurance operations needed to improve.
But Bragg said he was sceptical about the government rhetoric on group life. “All the government is doing at the moment is just talking and … blowing hot air into the ether. I’m not sure what the government is prepared to do,” he said. “Historically, the government hasn’t wanted to do anything that the union industry super funds don’t like.”
He revealed the Coalition would consider a policy of setting mandatory timeframes for payouts of death and TPD claims, indicating a “matter of weeks” would be an appropriate yardstick as it heads towards the next federal election, at which super policy is expected to be a contested issue.
ASIC data suggests the average claim time for death claims within superannuation is 1.1 months. For TPD in super, the average claim time blows out to 5.6 months, while income protection in super sits at an average of 2 months.
While well beyond Bragg’s hypothetical timeline, those averages are understood to be broadly in line with the Life Insurance Code of Practice.
But the Financial Services Council, which handed over oversight of the code to the newly established Council of Australian Life Insurers last year, says the heightened scrutiny of group arrangements has some merit.
“AFCA data and industry case studies make it clear a ‘set and forget’ approach to group insurance arrangements in superannuation is not sustainable,” said an FSC spokesperson.
“Group insurance has a privileged position in the superannuation system as an ‘opt out’ mandated product, and the industry recognises there is work to do by trustees and life insurers to ensure members consistently receive value for money.”
Those default arrangements were also at the centre of a legal dispute that came to light on Friday. Retail worker fund REST has been hit by a class action which alleges that the fund has “wrongfully deducted” income protection insurance premiums for some members.
The class action, led by plaintiff firm Shine Lawyers, alleges that REST defaulted members into income protection insurance without their consent between December 2008 and June 2019.
When members held multiple income protection insurance policies simultaneously, the REST policy provided little to no coverage, the class action alleges, as it now seeks compensation for unfairly deducted insurance premiums, lost investment returns and administration costs.
It also claims that when members go through an extended period with no contribution to their accounts (13 months or more), due to reasons like time off work, REST’s default insurance policy did not provide any coverage.
In a media statement, REST said it will defend the action in the Federal Court.
“Offering default income protection cover to REST members is a highly valuable benefit and supports members who are unable to work due to illness or injury. Many REST members work part time and would not be able to obtain income protection cover by any other means or at a reasonable cost,” a spokesperson said.
“Last financial year we paid out around $222 million in benefits to members across more than 10,000 income protection claims.”
