ASIC has suggested that super funds put more effort in to improving insurance in super, pointing out that changes next year could give the regulator the power to enforce the Insurance in Superannuation Voluntary Code of Practice.
The Code was announced by a group of industry bodies, at a time when the industry was coming in for criticism for its handling of insurance. Though the Code was also sharply criticised when it was released, by the Government and others. Trustees who sign up to the voluntary code commit to complying by 30 June 2021.
ASIC has now released a report into the implementation of the Insurance in Superannuation Voluntary Code of Practice.
At the time of the report, ASIC found that 64 APRA-regulated super funds trustees have signed up to the code in full (58%), 13 in part (12%), and 33 had either refused or their status was unknown (30%).
ASIC Commissioner Danielle Press said: “We recognise that there is significant change occurring in relation to insurance in superannuation. In this dynamic phase, it is important that superannuation trustees remain focused and committed to improving outcomes for members.’
ASIC found the Code was contributing to “promising” improvements in standards, but also identified a “number of inconsistencies in implementation”. The improvements included meeting shorter timeframes for claims and complaints processing, improved communication with members, and action by trustees to reduce complexity and improve service to members.
However, there is still “ample room for improvement”, ASIC found. ASIC notes that the Code represents “better” practices, not best practices.
“While acknowledging that the Code seeks to ensure a minimum standard, we have identified some issues where it is unclear whether the Code will produce optimal outcomes.”
One issue is that, under the Code, some member protections are “easily lost”. If a member engages with their insurance in super, “even in just a very basic way”, they may lose their status and protections as a default member.
ASIC also found “inconsistent approaches to balance erosion”, with trustees using different methods to calculate a cap on insurance premiums.
Additionally, some trustees were found to calculating claim and complaint timeframes in “unique ways”.
The Code could also be clearer on how vulnerable members should be supported.
“When we asked trustees to tell us who their ‘vulnerable members’ are, almost all responded that they treat ‘all members as vulnerable’. While there is some awareness within the industry of types of situational vulnerability…, trustees do not have policies and processes in place that reflect this in practice,” ASIC said in the report.
“This lack of awareness of the needs of their members undermines the acknowledgement that there are groups of consumers that have unique needs.”
ASIC pointed out that its engagement not a substitute for “proper oversight of the Code by a properly resourced code administrator that would have powers to investigate breaches and to sanction funds if breaches were not remedied”.
“There is currently no formal enforcement mechanism for the Code. Signatories are obliged to publish a compliance report each year on their websites. At the time of writing, very few trustees have met this obligation, although most have published a transition plan mapping their planned path to compliance.”
The Financial Services Royal Commission recommended that ASIC be given the power to approve and enforce industry codes. The Government has adopted this recommendation, and plans to have legislation introduced to Parliament by mid-2020. ASIC says this has “potential implications” for the super industry when it comes to the Code.