Default insurance short-changing members: ASIC

ASIC’s Report 675: Default insurance in superannuation: Member value for money assessed both publicly available data on default insurance provided by 20 MySuper products, and more granular data gathered from 11 large super trustees over a six-year period.

The report found there was “wide variation in [the] default cover offered”, with some large MySuper products offering more than 20 times higher levels of coverage than others.

This corresponded to a high variation in premiums paid by members, depending on factors such as the level of cover offered at a default level, average risk level of the membership and generosity of insurance terms and conditions.

Data from the 11 larger super trustees revealed that fund members with default insurance would, on average, be paid up to 79 cents in claims for every dollar they were charged in premiums over the six-year period to 30 June 2019.

The regulator also found the level of value provided to members varied greatly, depending on the age of the member and the restrictiveness of terms and conditions of the policy.

“Such outcomes raise questions about the appropriateness of the default insurance design and fairness between groups of members,” ASIC said.

Further, the report revealed that understanding of default insurance design among trustees themselves was low.

“Some trustees were unable to properly identify which members had default insurance, and some struggled to explain patterns in the data they provided to ASIC,” the regulator stated. 

“Those with the most complicated insurance designs and product structures tended to face the most issues.”

ASIC commissioner Danielle Press said, “Many Australians hold life insurance through their super fund. Almost 10 million superannuation accounts have insurance attached, and a majority have the default insurance offered by the fund.

“The decisions superannuation trustees make about default insurance arrangements are important because most fund members stay with the default.”

The regulator pointed to forthcoming design and distribution obligations that would apply to Choice products in super, including any attached insurance.

“These obligations will require the industry to design fit-for-purpose products that meet consumer needs, and to take steps to ensure their products are reaching the right consumers,” ASIC said.