ASIC warns of intervention after wrapping up a review of life insurance arrangements

ASIC has written to 15 super funds after running the ruler over their life insurance arrangements and finding some of them are not up to requirements.

ASIC commissioner Danielle Press said it was “simply not good enough” some super funds were failing the regulator’s standards.

The corporate regulator says superannuation funds must improve their life insurance products and warned that warning laggards could face intervention.

In a report released on Wednesday after reviewing the 15 trustees, the Australian Securities and Investments Commission said many of them had made changes to the design of their life insurance arrangements and streamlined claims but more work was needed.

ASIC said its review had found many trustees had worked with life insurers to make claims easier to navigate and policies easier to understand, while some had taken steps to enhance oversight of claims handling practices.

But ASIC found some super trustees had not improved their member communications and claims processing.

In a speech to the Australian Institute of Superannuation Trustees on Wednesday, ASIC commissioner Danielle Press said it was “simply not good enough” that some super funds were failing the regulator’s standards.

Ms Press said trustees should better use data to monitor member outcomes and “proactively identify how to better meet members’ needs and provide value for money”.

“Ultimately, we want members to have confidence that they are getting value from the insurance offered through their superannuation and that it is meeting their needs,” she said.

ASIC said some super trustees had not improved their member communications and claims processing.

Almost eight million Australians have some form of insurance through superannuation, with approximately 71 per cent holding default insurance provided through their fund’s trustee.

Most funds offer death cover, which pays a set amount if the policyholder dies or is diagnosed with a terminal illness, and total and permanent disability cover which pays a set amount towards the future costs of a person who has become disabled.

ASIC’s report reviewed arrangements covering 800,000 accounts managed by Australian Retirement Trust, BT Funds Management’s Retirement Wrap, Care Super, Hostplus, IOOF Portfolio Service Superannuation, Mercer Super, Spirit Super, AMP Super, NGS Super, OnePath’s Retirement Portfolio Service, Prime Super, TWU Superannuation, Telstra Superannuation, Equipsuper Superannuation, and the Construction and Building Unions Superannuation Fund.

ASIC said 12 of these trustees had changed eligibility requirements to make temporary death or disability cover more accessible after earlier findings by the regulator that funds were restricting access to the cover.

Separate from her speech, Ms Press said ASIC had written to all 15 trustees it surveyed to provide detailed feedback on their life insurance arrangements.

“Trustees, in particular, need to ensure they have robust systems, processes and controls to effectively administer their insurance arrangements,” she said.

“Trustees that fail to do this risk undermining any improvements they are trying to make for their members’ benefit.”

Ms Press encouraged all trustees to conduct a “thorough analysis of their insurance arrangements” and identify where they fall short and address any gaps.

“Life insurers also need to play their part by working collaboratively with trustees to implement any improvements,” she said.

ASIC’s review of life insurance arrangements in superannuation comes after the regulator raised issues in the space in 2019.

The regulator has repeatedly called on life insurers and superannuation funds to improve claims handling and payment.

But she warned ASIC would use its powers to enforce better compliance if it found trustees were not complying with their obligations.

“We expect all trustee boards to engage with the report, learn from it, and take action

to make improvements to ensure strong member outcomes,” she said.

Statewide Super was fined $4m in 2021 after ASIC found it provided misleading information about life insurance and failed to report the issue to the regulator.

Westpac’s BT Funds management was fined $20m after the Federal Court found the trustee had charged member premiums that included commissions payments, despite those payments being banned.