ASIC has criticised poor insurance premiums disclosure among a number of super funds, after evaluating trustees who place members into the highest risk life insurance categories by default.
The corporate regulator’s investigation looked at 21 trustees that were putting their MySuper members into a high-risk occupational category by default, examining the assumptions they used in this practice and how they were disclosing it to fund members.
The ASIC review was undertaken in 2019 and 2020 and focused on trustees whose members were typically either a broad-based mix of occupations, or mostly white collar.
The investigation found “significant variations in the sophistication of trustees’ assumptions and in the factors they took into consideration when designing their default category” and making the decision to assign the highest risk categories to members in a default fund option.
“Funds often select the highest risk category as their default to ensure all members are covered regardless of their occupation,” ASIC said.
“However, this means the premiums are comparatively high.”
Comparing average premium prices for the highest versus lowest risk insurance categories, the regulator found that premiums for lower risk categories were generally half the price of high-risk categories, while in the case of five of the 21 trustees, low-risk category premiums were between three and four times cheaper.
The ASIC review also found “poor disclosure by some funds, including about the relative cost of premiums in different categories and, in the case of 15 trustees, the use of a generic labels such as ‘standard’ or ‘general’ for the most expensive category”.
In addition, the process for members to update their insurance category was “generally not readily apparent or accessible”.
The investigation follows earlier intervention by ASIC to remove default smoker premiums charged to members of a number of funds offered by institutions including AMP, Colonial First State and IOOF.
IOOF-owned OnePath Custodians recently defended its decision not to remediate consumers who were charged premiums at smoker rates, saying fund members would have been charged more overall if there was no distinction between smokers and non-smokers.
However, ASIC commissioner Danielle Press said the results of the regulator’s investigation pointed to dubious assumptions being made by super funds around the likelihood of their members falling into high-risk categories.
“Superannuation trustees should take a considered approach to designing their default insurance cover,” Ms Press said.
“While a high-risk occupational default may be appropriate in some circumstances, trustees need to be able to justify their default settings based on their membership base.”
The regulator said the review was part of a number of initiatives aimed at “improving trustee practices around default insurance in superannuation”, and that it would “soon communicate about measuring the value for money delivered for members”.
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