The design and disclosure of occupational defaults of insurance inside superannuation need to be improved by trustees to deliver better member outcomes, according to the Australian Securities and Investments Commission (ASIC).
ASIC said trustees could be contravening their legal obligations if they failed to ensure that insurance premiums charged to members were based on appropriate statistical assumptions. When a fund’s occupational default was set to the highest risk category to ensure all members were covered regardless of occupation, premiums were comparatively high.
ASIC’s review into the occupational default practices of 21 trustees who were using a high-risk occupational category as the default in their MySuper products found three main issues.
- Significant variation in the sophistication of trustees’ assumptions and in the factors they took into consideration when designing their default category;
- Poor disclosure by some funds, including about the relative cost of premiums in different categories and, in the case of 15 trustees, the use of a generic labels (such as ‘standard’ or ‘general’) for the most expensive category; and
- The process for members to update their occupational category was generally not readily apparent or accessible.
ASIC said to enhance member outcomes with default insurance super funds should ensure that:
- Effort was made, through engagement with members and employers, to gather better occupation data about individuals and cohorts so that default settings were based on appropriate statistical assumptions and were fair and reasonable;
- Occupational default labels were meaningful, promoted understanding of the level of risk and associated cost of the category, and trustees took prompt action to address any mis-categorisation;
- Disclosures clearly stated:
- A member’s occupational category;
- The meaning of the category;
- The cost of the insurance in that category;
- Whether the member would be eligible for an alternative category that was less expensive or provided a greater level of cover; and
- Members could easily amend their profile so that premiums were charged based on accurate information.
ASIC commissioner, Danielle Press, said: “Our review found that the design and disclosure of occupational defaults are two areas where trustees can do more to improve member outcomes. They can do more by gathering better occupational data about fund members and by providing better disclosure to their members.
“Better occupation data about members will assist trustees in designing fair and reasonable default insurance, and good, clear disclosure can empower their members to make better informed decisions about their insurance arrangements.”