Australian Super probed by ASIC over delayed claims processing and payouts
Paying for life insurance through Super is a sensible, convenient way for many Australians to ensure a level of life coverage.
Otherwise known as default life insurance, policies are negotiated and managed by Super funds, and Super members do not need to do anything in the ordinary course to have “default” cover.
That is not to say that default coverage cannot be improved in many circumstances.
According to Rice Warner, most Australians with default life insurance are underinsured and not by a small margin: something that can be partially or fully remedied by increasing coverage via the Super fund.
And whilst underinsurance is a significant issue, it isn’t the only “default” limitation of default life insurance through Super.
Life Insurance, Income Protection and TPD claims through Super funds can be slower
With life insurance through Super, the relationship with the life insurer is with the Super fund (Super trustees) and not the Super member (or policyholder).
This means that when a claim is made, the Super fund handles it on behalf of the Super member.
This double-handling inherently introduces delay compared to a retail life insurance policy, where the relationship is directly between the Life Insurer and the policyholder.
In 2024, ASIC commenced Federal Court action against Super fund Cbus for unacceptably delayed claims processing and settlement. ASIC also notified the Super industry that such delays would be scrutinised and remedied through legal action.
Only a few months later, ASIC is investigating Australia’s largest Superfund, AustralianSuper, for similar delays to Cbus.
In an effort to get ahead of it, AustralianSuper did start paying millions of dollars in compensation last year after becoming aware of lengthy delays in its claims processing.
This response was due to regulator and broader pressure to improve, especially in the wake of growing complaints from Super members.
In its criticism, ASIC went further and pointed to the opaqueness of default life insurance policies, including the typical limitations of what Super funds published about their insurance offerings and the inaccessibility or inability of those with disabilities or those who do not speak English as their language, to understand their coverage and policies easily.
As part of its ongoing investigation, ASIC also found “gaping” holes in the data available to the Super funds (Super trustees), making it harder or impossible for funds to understand the extent of the claims delays.
In fairness to the Super industry, funds have been seeking to improve their claims processes, though the investigation into AustralianSuper shows that more improvement is needed.
Conclusion
Default life insurance through Super is a vital product for many Australians. First, it is important to know the level of cover and adjust it to more sufficient levels.
This can usually be done through the Super Fund website or app. Second, understand the limitations that come with default life insurance. They may not concern you, though they can generally be improved with a retail policy which can still be paid for through Super.
Specifically to claims assessment and payouts, understand that claims and payouts will be slower through Super and if that is important to you, a retail policy paid outside of Super is an option.
