A new review from the Australian Securities and Investments Commission (ASIC) has again highlighted issues with opt-out insurance policies included in superannuation products.
ASIC Commissioner Danielle Press said the Commission reviewed the practices of trustees of five large super funds that provided opt-out income protection (IP) insurance for approximately two million MySuper member accounts.
Ms Press said IP insurance provided an income for a period of time if an individual could not work because of illness or injury.
She said most IP insurance policies contained ‘offset’ clauses, which meant the insurance benefit was reduced or ‘offset’ if the individual received other kinds of income support like sick leave, workers’ compensation or other insurance benefits.
“We found that the trustees were not proactively giving their members clear explanations about when insurance benefits would or would not be paid as a result of offsets,” Ms Press said
“This information is relevant to members in considering whether they should opt-out of default IP insurance.
“Moreover, the offset clauses we saw have raised questions about whether trustees should be doing more to identify if there are groups of members who may be getting low value from default IP insurance.”
Ms Press said ASIC’s concern was not that offset clauses existed, rather the potential for insurance premiums to unnecessarily erode members’ superannuation balances if offset clauses meant particular groups of members got very little value from their default insurance if they needed to claim.
The Commissioner said ASIC’s review found variation in the types of income that were offset against IP benefits; disclosures about offset clauses were incomplete and difficult to understand; and no evidence that the trustees had rigorously analysed how their offset clauses affected member outcomes.
She said ASIC recommended that trustees analysed data to assess how offsets affected member outcomes; improve the extent and quality of disclosures to members relating to IP offsets; and clearly explained to their members how ‘offset’ clauses worked.
