Commentary on the Insurance in Superannuation Code

Overall, the new draft Code is a good first step to improve superannuation in insurance, which has had its problems over the last five years. The Code:

1. imposes obligations on superannuation funds regarding communications with members, product design, mechanisms for changing cover and claims and complaints handling.
2. deals with issues around account erosion from unnecessary/excessive premiums, including premium refunds; and
3. The Code includes oversight from a Code Administrator with enforcement powers.

The Code, which is due to commence on 1 July 2018, will be reviewed within three years and this may include seeking ASIC-approval which would be an important step.

Below is a short summary of the key features:

1. To prevent the erosion of account balances by insurance premiums, the code proposes to:
   1. Place caps on how high insurance premiums can be as a proportion of an individual’s income.
   2. Mandate that insurance cover automatically ceases for inactive accounts after 13 months, unless a member elects cover to continue.
2. The code also aims to make it easy to cancel insurance in super by:
   1. allowing for cover to be cancelled at any time by phone, email, letter or online.
3. Improve the way that complaints are dealt with by super funds and insurers by:
   1. Requiring that super funds monitor insurers’ compliance with the FSC code, including time limits. Also, the time limits for any insurer to deal with a complaint are to be reduced from 90 days to 45 days.
4. Regulating what insurance products are available in super
   1. The aim of this change is to impose general obligations on insurance benefits to make sure that they are appropriate and affordable.
   2. No standard definitions of Total and Permanent Disability (TPD) or total disability is proposed, but funds are required to inform members of any variations to the standard TPD definition in other legislation.
   3. To compliment the code, the ISWG is developing a Best Practice Guide which will include standard definitions, exclusions and limitations for group policies. This is welcome, although a draft is yet to be released.
5. The code proposes to improve communication by:
   1. Requiring that standard information be provided in welcome packs and annual statements.
   2. Introducing a two-page Key Facts Sheet which summarises the important insurance features and information.
   3. Acknowledging that vulnerable consumers may require specific information and assistance.

All of these changes are welcomed and most will make real change, but how will these requirements be enforced?

The Code establishes a Code Administrator/Compliance Committee with powers of monitoring, investigation, reporting and imposing sanctions. The Code is currently silent on seeking ASIC approval for these changes, although it has been flagged that this may form part of the mandatory review within three years. Code Administrator/Compliance Committees are a common feature of industry Codes and have worked effectively to hold members accountable for compliance. It will be important that the Code Administrator appointment process is rigorous and that they are adequately funded to perform their functions.