Super funds on thin ice over default insurance
The role of insurance within super will be a focus of 2017, warns regulatory bodies ASIC and APRA.
The Australian Securities and Investments Commission (ASIC) has warned that it will issue 50 superannuation funds with an official notice, requiring them to explain their relationship with insurance providers.
ASIC senior executive leader Ged Fitzpatrick issued the warning at the Australian Institute of Superannuation Trustees’ Conference of Major Superannuation Funds 2017 last week.
“We intend to serve notices to approximately 50 trustees in the coming weeks – from across the retail, corporate and industry sectors – asking a range of questions about their relationships with insurers and employers,” said Fitzpatrick.
“We are hoping that the responses to the notice will provide us with some important facts about these two core areas and we’ll use the data to potentially issue further notices to some trustees to answer further questions.”
ASIC has said it will make it as easy as possible for the funds to answer and that they will have around six weeks to do so.
“We’ve been interested in the area of insurance for some time, both within and without super, and this year we are undertaking a special insurance in superannuation project, looking at complaints handling and disclosure, as well as aspects of incentives, potential conflicts and culture that might impact consumers,” said Fitzpatrick.
“Trustees should be there operating for the member in their engagements with the insurer.”
The Australian Prudential Regulation Authority (APRA) also has its eye on how superannuation funds deal with default insurance.
APRA deputy chair Helen Rowell has said, “We need to take a bit of a step back to consider what the role of insurance in super is and, in particular, the different roles of default insurance versus choice insurance.”
“Trustees should be thinking about what is the appropriate level of insurance for the default and how should you structure a choice offering that allows members to dial up or dial down their level of insurance. I think we are seeing a real tension now between insurance and accumulation for retirement,” said Rowell.
“We’ve got an SG [superannuation guarantee] of only 9.5%, low returns, expenses are chewing into that more and insurance costs are chewing into that more, so there needs to be a real robust view taken by trustees about what that concept of unreasonable erosion means and do they need to actually pare back their insurance a little bit and change the design and level to be more basic,” Rowell added.
The role of insurance within super is also currently being analysed by the Parliamentary Joint Committee into life insurance.
If you’re interested in comparing super fund options, check out our guide to deciding which fund is right for you.
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