Super funds have been slammed by a coalition of consumer groups for omitting essential information in conveying insurance messages to encourage members to maintain life insurance policies which they may be unable to claim or possibly don’t need.
Under new laws, default life insurance policies through super accounts that have been inactive for more than 16 months will be cancelled, unless fund members elect to “opt in” or reactivate the account. The change, together with the automatic consolidation of low-balance super accounts by the Australian Tax Office, will potentially save members up to $2.6 billion each year in fees and life insurance premiums.
The Australian Securities and Investments Commission (ASIC) told super funds in April to inform affected members about the change in a way that is “balanced and factual” and not misleading. A review of funds’ communications with members by a coalition of consumer groups revealed, however, that many fell below the bar set by the corporate regulator to “provide helpful and balanced communications,” The Sydney Morning Herald reported.
According to Choice, the Financial Rights Legal Centre, Financial Counselling Australia, and the Consumer Action Law Centre, “few funds demonstrated a willingness to consider their members’ interests in how they have communicated the changes” and “many failed to consider the cognitive and financial capability of their members and overwhelm[ed] members with data, sending multi-page spreadsheets requiring multiple mathematical equations, and an understanding of product design to determine the cost and benefit of a product.”
The groups said the funds omitted key facts, such as failing to inform members of the benefit in not having insurance and not saying whether a member’s account was “inactive.” They also said the funds should have also informed members of any possible disqualifying factors instead of just telling them that their insurance will be cancelled if they do not “opt in.”
While the loss of insurance is a risk for some people, it is unfair for funds to be urging people to maintain policies that they may be unable to claim against, they said.
“A significant number of group insurance policies require a work test or some income to make a valid claim,” the consumer groups said. “The most likely reason for an account to be inactive is either because someone has moved to a new employer, or they are not in paid employment.”
The groups urged super funds to do a better job in communicating with affected members on the next tranche of changes to insurance inside of super, to take effect on April 01, SMH said.