Insurance in super – a continuing focus for ASIC and superannuation trustees

Superannuation trustees continue to face increased scrutiny from ASIC into the industry's practices and compliance with laws on members' services. One of the areas that ASIC continues to focus on is the need for superannuation trustees to improve insurance outcomes for fund members.

Since 2019, ASIC has undertaken a range of reviews and measures to address consumer harms arising from life insurance arrangements within superannuation funds. In 2023, ASIC released Report 760 following an extensive investigation into such arrangements which outlined key issues hindering the delivery of better insurance outcomes for members and made corresponding recommendations to assist trustees in rectifying shortfalls. Issues identified fell within the following areas:

• Insurance design and data;
• Claims handling practices; and
• Helping members understand their insurance.

More recently, ASIC wrote to superannuation trustees in November 2024, reminding trustees about the steps that need to be taken to address the failures identified by ASIC to date (including the results of ASIC's interim review in May 2024 which focused on how trustees handled death benefit claims). In its letter to superannuation trustees, ASIC also noted that it will be issuing a public report in early 2025 with detailed insights from ASIC's current review focused on death benefit claims.

Although some time has passed since the release of Report 760, as the industry awaits the release of ASIC's public report and given recent ASIC enforcement action against United Super Pty Ltd as trustee for the Construction and Building Unions Superannuation Fund (Cbus) for improper handling of insurance claims, ASIC's investigation of AustralianSuper for delays in paying out insurance claims and APRA's recent action against Cbus,^[1] superannuation trustees should revisit the key findings and recommendations made by ASIC in Report 760 and consider their practices and compliance with such requirements.

Insurance design and data

ASIC noted in Report 760 that the design and delivery of insurance cover requires proper construction to mitigate the risk of members paying for insurance that does not meet their needs and/or paying for cover which they can never claim on. Key areas for improvement included insurance data and design, namely:

• where superannuation trustees have not already done so, the removal or amendment of restrictive total and permanent disability (TPD) definitions and continual monitoring of member outcomes to ensure members are not being funnelled into restrictive TPD definitions which can negatively impact the ability of members to make successful claims;
• the need for increased monitoring of member insurance outcomes data to ensure the offered insurance coverage meets members' needs (ie. allows members to make claims when they need to) and provides adequate value for the premiums paid;
• the need for trustees to review the target market determinations (TMD) of their choice products to ensure they clearly describe the suitable class of consumers in the target market for the product (including for the insurance component of the product, having regard to any eligibility criteria and exclusions that apply to the insurance cover) and include appropriate review triggers; and
• the need for regular assessment of the impact of income protection (IP) cover offsets on member outcomes to mitigate the risk of IP offsets resulting in members receiving little to no value from their default IP insurance coverage.

Claims handling practices

Claims handling and settling services have been recognised as a designated financial service under the Corporations Act 2001 since 2021 and claims handling has been an area of focus for ASIC in recent years. While insurers ultimately determine the outcome of claims as the paying entity (albeit trustees have a role checking the insurance policy is being complied with by the insurer), ASIC identified superannuation trustees as playing a crucial role in assisting members in making an insurance claim. Upon reviewing claims handling practices of trustees, ASIC highlighted the following areas for improvement:

• improved design and delivery of claims processes with members' experience being in front of mind so there is greater transparency of outcomes and a reduction in delays caused by procedural burdens;
• regular review of complaints and reasons for claims being withdrawn to identify and prepare for issues that members may face in future claims; and
• increased oversight of insurers' claims handling processes to ensure they are structured to drive optimal and feasible outcomes for members, including frequent discussion with insurers regarding emerging trends and AFCA compliance.

Helping members understand their insurance

ASIC also noted that trustees have a duty to help members understand the costs and benefits of their insurance through regular updates so they can make informed decisions. While ASIC noted in Report 760 that trustees have made improvements to their communication strategies and materials, they make a number of recommendations which include (amongst other things):

• providing clear and balanced member communications to ensure members are able to understand the details of their insurance coverage and any issues (including notice of changes and the impact of such changes) which may influence their decisions in respect to their insurance;
• proactively communicating key terms and conditions of insurance to members to enable members to make informed decisions, for example, informing members of potential impacts of restrictive TPD definitions where applicable, their assigned occupational category and applicable IP cover offsets on their coverage; and
• leveraging member data and consumer research to ensure communication processes are optimised for members.

Continuing impact of Report 760

ASIC's views on insurance in super remain highly relevant, noting recent media coverage of ASIC's investigation into AustralianSuper's remediation of thousands of members where the time taken to pay out insurance claims exceeded the fund's four-month internal standard.

Failing to adequately discharge trustee duties can attract significant penalties and ASIC is not hesitating to bring enforcement actions against various superannuation trustees for improper practices including, against:

• Cbus in 2024 for significant delays in processing insurance claims for over 10,000 members causing an estimated loss of $20 million to members and claimants; and
• Statewide Super (now part of Hostplus) in 2022 for misleading its members about information relating to their insurance and failing to report breaches to ASIC resulting in a penalty of $4 million.

ASIC's focus on member service failures (including poor handling of death benefit claims by superannuation trustees resulting in a significant increase in complaints to AFCA in recent years) has been evident in its enforcement priorities in recent years.

The above action taken by ASIC are consistent with its superannuation enforcement priorities concerning member service failures (including extreme processing delays and poor handling of death benefit claims by superannuation trustees which has resulted in a significant increase of AFCA complaints in recent years) and again highlights ASIC's growing oversight of insurance in super.

Trustees should also be aware that the Government is seeking to introduce mandatory and enforceable service standards for super funds. The proposed standards intend to target:

• timely and compassionate handling of death benefits;
• fair and efficient processing of insurance claims; and
• clear, respectful and accessible communications with members.

As regulatory pressures rise, superannuation trustees should be looking to improve their claims handling practices and align themselves with ASIC expectations to avoid investigative and/or enforcement action.

If you would like to further discuss the implications of ASIC's recommendations in Report 760 on your business or require assistance with any superannuation-related queries, please contact us.