ASIC is concerned by the some of the poor disclosure around insurance in superannuation, including the practice by some funds of deeming members to be smokers by default for insurance purposes.
The regulator said there were “some areas for improvement, including in relation to the provision of insurance through superannuation funds and disclosure practices,” with the release of the Member experience of superannuation report.
ASIC said some of the concerns related to “poor disclosure” where the insurance cover of a member had ceased or changed without adequate warning from the super fund.
“ASIC expects superannuation trustees to take a consumer-focused approach and make their disclosures as effective as possible. It is not enough for trustees to mention circumstances in which cover might change upfront, as disengaged members will almost certainly not recall that possibility many years later.”
The regulator also found that some super funds may be using “inappropriate defaults” for member insurance.
“In some cases, where trustees have moved members within a fund, trustees are treating members as ‘smokers’ for the purposes of calculating their insurance premiums without knowing whether the member smokes or not. This can result in a higher premium for the member, which would be inappropriate given the low and decreasing levels of smoking among members of the public.”
The ASIC report says: “We expect all trustees to immediately review their default arrangements in insurance, particularly where members are being transferred between fund divisions without consent. Defaulting members as ‘smokers’ or ‘blue collar workers’ in the absence of information about member status is inappropriate.”
ASIC Deputy Chairman Peter Kell said that inappropriate defaults can be adverse to consumers, as they are unlikely to notice the change.
“We are taking follow-up actions with funds about the issue of defaults,” he said.
ASIC did note that the superannuation industry is considering issues with insurance through the Insurance in Superannuation Industry Working Group (ISWG), saying that it expects these findings to be “considered” by the group.
The report findings, in particular the deeming members to be smokers by default, will inform two other compliance projects being conducted by ASIC in 2017 – Employers and Super and Insurance in Super.
“We intend to make public the results of our 2017 project work. Now is the time for trustees to consider whether their practices are in the best interests of members, as well as whether their members are adequately informed of decisions affecting them,” Mr Kell said.