How effectively trustees engage with their members over the fund’s insurance offering has become increasingly important with the introduction of the Protecting Your Super regime – as this legislation requires the cancelling of cover in certain circumstances.
In this edition of Super Verdict we review two decisions of the Superannuation Complaints Tribunal (Tribunal), with one member complaining about the loss of cover that was cancelled in accordance with fund rules designed to protect low account balances from erosion while the other member complains about the ‘excessive’ cost of the insurance, and wanting the premiums refunded. Clearly, truly effective engagement with members who don’t have a financial adviser is a number one industry issue!
The fund in question was one of the public sector schemes where members had a hybrid benefit structure combining both defined and accumulation style benefits. A feature of the accumulation side of the fund rules was two units of death and total and permanent disablement cover. In 2016 the fund’s insurance rules altered with cover ceasing when the accumulation account balance dropped below $5,000, and no contributions had been received in the past 12 months. If members wanted cover to continue, they were required to opt into permanent cover which was not subject to the safety net rules. The trustee provided members with written notice setting out the new insurance terms.
The member’s cover was cancelled and reinstated a number of times and there was a string of letters and emails between the member and the trustee with the result that none of the facts were in dispute.
On 19 October 2016, the member called the fund and requested her cover be reinstated and she confirmed this by email the following day. On 1 December a letter was sent to her home address confirming the reinstatement of cover and advising the premiums would be backdated (Reinstatement letter).
Inexplicably twelve days later an email was sent to the member’s work email address advising her that cover would be cancelled in less than a month. An automated response was generated from her inbox saying she was on leave until March 2017. In both January and February, the trustee emailed the member at her work address and advised her cover had been cancelled. Again, the inbox generated the – I am on leave until March 2017 message.
On 6 February 2017 the member’s husband emailed the trustee acknowledging the receipt of the Reinstatement letter and requesting information as to what steps to take to ensure cover continued. It became clear he had not received any notice about the second cancellation of cover as his wife was not checking her work emails while on leave. On 8 February the trustee received the completed opt into permanent cover form dated 6 December 2016. Soon afterwards an ’it’s all sorted‘ letter was sent to the member. The delay in replying to the reinstatement letter was due to the member’s iil-health over the Christmas period.
On 26 May 2017 the member’s husband was advised over the phone that cover had once more been cancelled effective 14 January 2017, but that the trustee would investigate what could be done. On 5 June the husband was advised that cover wouldn’t be reinstated, and this was confirmed by letter two days later. The letter informed the member she would need to reapply for cover and be subject to the insurer’s underwriting rules. The insurer decided to not provide insurance cover as it was “definitely outside the[ir] risk appetite”, given the health of the member.
The Tribunal noted it was bound by the insurance policy terms as determined in AIA Australia Ltd v Lancaster  FCA 962. It was held that while the member’s intentions were known by the trustee she had, as a matter of fact, failed to complete the opt-in form prior to the second cancellation of her cover. Her cover was validly cancelled in accordance with the fund’s safety net rules. The terms of the policy did not require the insurer to reinstate the cover, so its decision was fair and reasonable in the circumstances. Further, the trustee had neither the power to reinstate the cover nor the right to direct the insurer to do so. In these circumstances, the trustee’s decision to agree with the insurer was fair and reasonable. In coming to this determination, the Tribunal noted the efforts taken by the trustee’s staff to have cover reinstated. In other words, the trustee had acted fairly and reasonably.
The member joined the fund in 1998 whereupon he received death and total and permanent disablement (TPD) cover of $40,000 for $1.50 a week.
In January 2012, the member applied for “tailored” fixed death and TPD cover of $200,000 (that is, the cover did not decrease as his age increased), and income protection cover of $2,500 a month. The insurer accepted the application but categorised his occupation as ‘hazardous’. The weekly insurance premium jumped to $113.32.
Insurance premiums increased significantly in 2014 and so the trustee sent the member a comparison table showing the current cost of his insurance and what it would become from 1 July. It was about twice the cost.
When the member received his 2015 annual statement he noticed that the cost of his insurance was $17,000.67. He complained saying he had never received any information about the increased costs and that this had wiped out his account balance. The trustee pointed out that it wrote to him before the increase took place in 2014, and that both his 2014 and 2015 member statements disclosed the premium amount and advised him to contact the fund if he wanted to review his insurance cover. But the member was upset and asserted “…these fees are disgusting. There is no way I would have agreed to these premiums.”
The Tribunal noted that the insurance guide (called the Solutions Guide) applicable when the member applied for tailored cover stated – “… All of your cover will convert to a premium based on your occupation classification. This means you will pay a different premium to the premium you previously paid, for the same amount of existing cover, because of your occupation.” The guide also explained the difference between fixed cover and fixed premium cover (with the latter being where the insured amount general decreases with the member’s age). In applying for tailored cover, the member declared he had received, read and accepted the accompanying ‘Solutions Guide’.
The Tribunal held that, on the balance of probabilities, the member had received correspondence from the trustee over the years posted to his home address. The member’s own evidence suggested he was reading the various statements, letters and significant event notices when making his complaint. The member’s assertion he had not received various communications was rejected. The Tribunal also held that is was clear the member had applied for, and was granted, tailored cover and that the trustee had always kept the member fully informed of the weekly cost, and that he could change to a different insurance arrangement should he so wish. In these circumstances the Tribunal agreed that the trustee’s decision to not refund the premiums was fair and reasonable.
The Protecting Your Super regime has seen the introduction of opt-in insurance laws for members who have inactive accounts, and so the issue of truly effective member engagement and how to achieve this is at the forefront of industry minds.
The issue is further compounded by the recently passed Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019 which seeks to implement additional provisions making insurance opt-in for members under age 25 and low-balance accounts (that is, less than $6,000).
Whilst the issue of member engagement is a matter that superannuation trustees continually grapple with, these insurance changes and the potential for members to be unwittingly left uninsured as a result of ineffective member engagement, makes the engagement issue even more acute.