ASIC ready for more action on claims handling as funds scramble to lift their game

If anybody thought that ASIC would walk away from super’s administration problems after making high-profile examples of Cbus and AustralianSuper, the release of Monday’s report into death benefits claims handling would have made them think again. And ASIC commissioner Simone Constant says that the regulator isn’t going anywhere.

She says that the tone of Monday’s report was “deliberately educative”, and that ASIC also hopes its court actions will have a deterrent effect. But it also knows that lax service standards are widespread, and it’s not afraid to go harder to correct them – even if it means “holding feet to the fire”.

“If we continue to see failings, including when we circle back on this and in our ongoing focus on member services, we will and are required to bring enforcement action – unashamedly,” Constant tells Investment Magazine.

Constant says she believes that administration failings stem from funds’ historical bent to accumulation and performance- and peer comparison-based marketing. There hasn’t been a focus on their own operations, and there has “potentially been complacency” and failings in governance and leadership when it comes to collecting and understanding member data.

“They’ve seen themselves as accumulation providers; they are service providers as well and that’s going to be increasingly important,” Constant says. “They cannot take members for granted.”

The stakes are only heightened by the fact that many funds will see a huge number of members entering the retirement phase over the next 10 years. When they’re spending their super they will inevitably engage more with it; they’ll have more questions, and want the answers faster than they’re currently getting them.

“We want members to understand what’s going on in their funds and make choices and see real competition,” Constant says.

“This is compulsory, but that doesn’t mean there can’t be true competition on service delivery not just on asset management performance.”

But a common complaint as ASIC turns its spotlight on administration is that years of regulatory pressure on fees has caused funds to scrimp on member-facing services at the risk of failing the Your Future, Your Super performance test or turning up red on the APRA MySuper and Choice heatmaps.

“There’s a requirement to meet the best financial interests of members and they’re incentivised to pass the performance test,” Constant says.

“But I would also say that they’re required to meet their service standards to their members. How they go about that and setting the fee levels, they should be able to balance that – that’s their role.”

And Constant also says that cost doesn’t seem to have been an obstacle for some funds, as evidenced by behaviour around claim staking – where trustees provide beneficiaries an opportunity to object to their decision. One fund, which goes unnamed in the report, claim staked 92 per cent of the time.

“The best financial interests duty  – how is that being met by a fund that claim stakes 92 per cent of the time?” Constant says.

“We were seeing claims for $500 where more than five times that amount was being spent on the claim staking process. How is that in the best financial interests of members? That’s not sustainable operations, and that’s entirely within the control of the trustee.”

Mary Delahunty, CEO of the Association of Superannuation Funds of Australia (ASFA), points to a backlog of claims stemming from the Covid years as part of the reason for the delays but agrees that the “genesis” of the problem goes back to funds focussing on accumulation.

“The complicating factor with this is that death benefits are complex by nature,” Delahunty says.

“They’ve got usually two parts to the payment, and obligations for trustees to find the right people and give them the right amount of money. And we have a really low level of binding death benefit nominations in the system.

“When you’ve got a binding death benefit nomination, the process will go faster. Trustees still have their duty to make sure that’s a valid nomination, but it certainly does speed up the process [but] they aren’t simple to make. To make a nomination requires a paper-based form, a wet signature, a witness of a certain standing professionally – these are antiquated concepts in today’s modern world. We’ve got some regulatory changes to make as well. It’s no one single driver.”

ASFA has its own death benefit claims handling standards which it launched in September 2024 and ASFA expects all the funds that have signed on will be ready to deliver to those standards by July.

“The part that will be most apparent if you’re a member of a super fund or a beneficiary will be communication – clear, compassionate and consistent communication is what was missing,” Delahunty says.

“AFCA were really keen for us to make sure that we understood that in the service standard we released as well. They thought a lot of complaints would have been alleviated by better communication.”

The latest AFCA data showed a “significant drop” in death benefit claims handling times, Delahunty says. And some of the funds named and shamed in ASIC’s report have started to lift their game.

Since ASIC tapped it on the shoulder, Rest – which was the worst performer in the report, closing only 8 per cent of claims within 90 days – has introduced a “fast-track process” for low-balance claims and has tripled the number of claims resolved within 90 days, according to chief service officer Brendan Daly. It has also reduced the number of open claims at 180 days by a third and “expects to continue resolving claims at this pace, or more quickly, going forward”.

But around 96 per cent of its members don’t have a binding death nomination in place, which Rest says requires it to “diligently work through a complex claim-staking process” to understand who should receive the benefit.

“Death claims are often complex with multiple beneficiaries and in the absence of a binding death benefit nomination, often require us to wait for more information from a claimant or take certain actions to properly investigate a claim,” Daly said.

“We recognise that death benefit claimants are likely to be contacting us at a time of great vulnerability, which is why our member-facing teams prioritise empathy and compassion throughout the claims journey.”

A spokesperson for Hostplus, which closed 22 per cent of claims within 90 days, said that a “significant body of work” had been undertaken by the fund over the past 12 months to improve its claims handling and service delivery, including changes to its claims assessment processes to support shorter turnaround times and the introduction of “enhanced controls” for monitoring them.

“These enhancements directly address many of the observations made by ASIC in the report and demonstrate our commitment and focus on delivering better member outcomes in this area,” the spokesperson said.

But nobody came out of ASIC’s report looking good, and the entire industry is now on notice to lift its standards. As Constant says, the regulator will be watching closely.

“We’re coming back to it. This is a multi-year programme on member services generally which supports overall operational improvements,” she says.

“Death benefits specifically we’re coming back to it within a year. We will be making sure that they’re doing what they say they’re doing. If they make commitments, and some funds are pleasingly already making improvements, but over the next 12 months we’ll come back and see if they did what they said they were going to do.”