News
Govt superannuation proposals recognise value of life insurance in sup
2nd Aug 2017
Proposed Commonwealth legislation to regulate superannuation-linked life insurance products will help restore public confidence in the industry, the Australian Lawyers Alliance (ALA) said today.
The Federal government recently released draft legislation to amend the Superannuation Industry (Supervision) Act 1993, the Corporations Act 2001, and the Financial Sector (Collection of Data) Act 2001, saying the amendments will improve scheme accountability and member outcomes, and will increase regulatory powers over the industry.
The proposed changes include giving the Australian Prudential Regulation Authority (APRA) increased regulatory and intervention powers, and introducing a new test for insurance trustees to ensure that outcomes being delivered are in the financial interests of their members.
ALA spokesperson Josh Mennen welcomed the government’s proposed changes, saying that automatic death and disability insurance through superannuation is a critically important safety net for workers and required appropriate regulations and protections. However he added that it is also up to the industry to demonstrate that it is committed to ensuring that members in default MySuper products are provided with quality insurance cover they can rely upon to pay up if they cease work due to injury or illness and that does not inappropriately erode their retirement income.
“The proposals announced by the Commonwealth recognise the value of properly-regulated superannuation-funded life insurance to workers in Australia, and the Australian Lawyers Alliance welcomes this new focus by the Federal government,” Mr Mennen said.
“Traditionally, insurance in superannuation was generally of a high quality and represented good value to the public. However there has been a concerning spike in premiums in recent years whilst at the same time claims and policy definitions have become tougher. The industry must get the balance right and these measures will assist.”
“The latest APRA statistics released on 23 May 2017 confirm that insurers’ super based businesses are enjoying healthy profits. It’s appropriate for premiums to come down to ensure the preservation of members’ retirement savings whilst also providing adequate levels of quality insurance” Mr Mennen said.
“Underinsurance in Australia is a serious concern,” Mr Mennen said. “The Commonwealth’s proposals will work to improve the quality and prevalence of super-funded life insurance policies in the workplace.”
Mr Mennen said it was important for all stakeholders to work together to get the industry settings right to ensure good sustainable outcomes for policy-holders and insurers alike.
Mr Mennen emphasised the importance of ensuring that no members are worse off due to any changes by regulators or industry. He called for a ‘no disadvantage’ test for members to ensure that superannuation balances and life insurance policies will be protected as regulatory changes are implemented.
“Any move to automatically consolidate members’ inactive accounts must be carefully thought through,” Mr Mennen said. “Whilst it makes sense to consolidate multiple accounts to reduce administrative and insurance fees, it’s important that members are not unwittingly transferred into a fund that provides inferior or less affordable life insurance than the fund they are rolling out of. That would impose an unfair disadvantage.”
“A ‘no disadvantage’ test will require a system to ensure that a member whose funds are being consolidated does not end up with reduced insurance as a result,” Mr Mennen said.
“There obviously also need to be robust practices in place to notify members of proposed policy changes, with practical information as to the risks of losing cover, and to allow them to opt-out of any such automated event.”
The Australian Lawyers Alliance also called for a robust Code of Practice for claims handing and insurance product standards to be established by the industry.
“We look forward to seeing the Code of Practice proposed by the Insurance in Superannuation Working Group (ISWG). The code needs to be submitted for regulatory approval and oversight to have lasting credibility” Mr Mennen said.
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