ASIC reports failures of Superannuation default insurance cover

A recent report by the Australian Securities and Investments Commission (ASIC) has highlighted that group insurances provided by superannuation funds are of lower quality. Despite targeted work in the area since 2019, ASIC found that trustees have not made sufficient effort to improve the life insurance provided to their members.

ASIC investigated whether members were receiving better value from their insurance, whether claims handling had improved, and whether better decisions were being made on their cover. The report found that across the funds reviewed, only 800,000 members had income protection cover, while three million accounts had death and total permanent disability (TPD) cover.

According to ASIC, many super funds were found to be using restrictive TPD definitions such as the 'activities of daily living' (ADL) definition, resulting in more than half of the claims assessed under ADL being rejected. While some progress has been made, ASIC found that the progress is not consistent across the industry.

The report also flagged that trustees were not adequately monitoring member value from default insurance, with some members paying over 12 times as much for cover at certain funds versus others. Although all 15 trustees in the review now monitor member outcomes, such as premium affordability for certain cohorts, more needs to be done.

On claims handling, ASIC said all trustees have taken steps towards reducing frictions in their claims handling processes, but data suggests more needs to be done.

The report also found that one-third of members feel confused, overwhelmed, or uncertain after contacting their fund about their insurance. While some improvements have been made in communications and consumer testing, ASIC emphasised that trustees need to do more to help members understand their insurance.

In conclusion, the report highlights that there is still work to be done to improve the quality of group insurances provided by superannuation funds, and trustees need to take more proactive steps in multiple areas, to ensure their members are receiving better value from and understanding of their insurance.