Insurances through Superannuation: A Gap in Consumer Protection

A recent MetLife case has exposed a significant gap in consumer protection when it comes to insurances held within superannuation. The case revolved around a troubling situation where an insurance company refused to honour a policy and provide the necessary payout.

The complaint, filed with the Australian Financial Complaints Authority (AFCA), centered on the non-payment of a benefit related to the insured's claim against their group total and permanent disability (TPD) insurance policy held within their superannuation fund. The insured launched proceedings after their request for a reconsideration of the claim was turned down, despite providing new documents to support the claim.

Unfortunately, despite their attempts to help the insured party, AFCA's jurisdiction to handle such a complaint was challenged by the insurance provider MetLife and the Federal Court ruled in favoured of the insurer. This left AFCA powerless to intervene in this case and many others like it, highlighting the inadequacies in the current consumer protection framework.

This result highlights that there is one set of rules for the large superfunds and another set of rules for every other financial service provider in the country.

As a result of this ruling, Treasury is taking action, proposing legislative changes through the Treasury Laws Amendment (Measures for Consultation) Bill 2023. This crucial bill seeks to empower AFCA to hear complaints related to superannuation, even in cases where they might not strictly meet the current definition of a superannuation complaint. This step is essential to ensure that consumers are not left vulnerable when faced with insurance claim denials, especially when they are legitimately eligible for coverage.

Additionally, the Financial Services Council Australia (FSC) welcomes changes to financial services, superannuation, and life insurance policies from 1st July 2023. The changes are said to empower Australians managing their superannuation, enhance consumer protections in life insurance, and improve product design and distribution. New standards for insurance claims in superannuation and a Life Insurance Code of Practice will be enforced.

It will take at least two years to see whether these changes have a positive outcome for insured Australians.