Trustees Urged to Scrutinize Insurer Rulings on Super Claims
Superannuation trustees must independently review adverse insurance decisions, according to the Australian Financial Complaints Authority (AFCA). The authority found a trustee accepted an insurer’s decision without reviewing key underwriting information.
The trustee relied on the insurer’s decision to vary or avoid insurance cover under section 29 of the Insurance Contracts Act 1984. This approach was applied to a broader group of declined claims, raising concerns about the trustee’s responsibilities to members.
AFCA emphasized that trustee oversight is essential. They stated that trustees should not solely rely on insurer expertise. Trustees must have access to evidence supporting significant adverse insurance decisions and processes to determine if further action is needed for the member’s benefit.
Following AFCA’s investigation, the trustee secured an agreement with the insurer to provide relevant retrospective underwriting opinions and extracts. The trustee also reviewed declined claims, developed a consistent approach, and strengthened policies, procedures, systems, and staff training.
While the historical review did not change claim outcomes, AFCA found the reforms improved the trustee’s ability to independently consider future adverse insurance decisions. Trustees are not expected to duplicate an insurer’s claims assessment but need sufficient information to understand the basis of an adverse decision.
AFCA also identified member transaction failures as a systemic concern, including delays in investment switches, rollovers, and failures to action digital documents. Trustees should ensure their systems can confirm instructions have progressed through each stage and identify where transactions or account changes have not occurred.
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An investigation into delayed investment switch requests revealed systemic issues. These included a system configuration preventing valid requests from being executed, a separate automated process failure, and reconciliation controls that did not detect failed transactions promptly.
Affected members experienced financial detriment due to incomplete instructions during market movement. The firm corrected system configurations, completed outstanding transfers, reviewed affected members for lost earnings, and paid remediation where losses were identified.
Further examination found one member had not received the full remediation amount, prompting an additional adjustment. AFCA considered the issues resolved after corrective action, member remediation, and strengthened monitoring controls.
Across financial services, systemic issues affected 390,724 consumers and small businesses. AFCA conducted 104 detailed investigations, reported 63 systemic issues to regulators, and secured $1.2 million in refunds and financial remediation.
Trustees may need to reevaluate their processes for handling insurance claims and member transactions. This could involve reviewing AFCA’s guidance and implementing changes to strengthen oversight and systems. By doing so, trustees can better fulfill their responsibilities to members and maintain trust in the superannuation system.
