Income protection decisions from AFCA

6 min read
6 min read

Case 1

It is not unusual for school teachers approaching retirement to change their work status to that of a casual relief teacher. But what is the impact of this decision on the individual’s income protection (IP) insurance cover?

In 2012, the member reduced her hours so she worked, on average, no more than ten hours each week. The case was essentially about her changing work patterns and the effect that had on her IP insurance.

The first decision being reviewed was that of the trustee refusing to pay back premiums deducted during the period January 2012 to July 2016, when IP cover ceased. The second decision under review concerned whether the trustee had appropriately disclosed changes to the IP cover in 2015 when the number of hours required to work for the cover increased from ten to fourteen.

AFCA had to explore whether the trustee should have cancelled the IP cover when the member first reduced her hours. Obviously, the trustee had knowledge her hours were reducing because her employer Superannuation Guarantee (SG) contributions would have significantly decreased, but that alone did not necessarily mean she no-longer wanted IP cover. AFCA held that the “trustee could not be aware of any other income-producing employment the complainant may have had if she did not disclose this” to the trustee.

The member did not contact the trustee until July 2016 when she applied for a benefit payment having reached her preservation age. At this time, she advised that “she had permanently retired from the workforce” and she had no intention of becoming “gainfully employed for 10 hours or more a week.” In a phone call in May 2019 with a trustee representative, the member was told the trustee could not assume how much time she was working at any time, even though she had signed the not working more than 10 hours declaration in 2016. This was because she may have returned to work at some time that would have entitled her to an IP benefit if she made a successful claim. AFCA agreed with the trustee that it was right to not have cancelled her cover and, accordingly, correct to not refund her premiums.

The second issue being considered was disclosure. On 5 September 2015, the member was sent a benefit statement for the first six months of that year. The statement included advice that while the premiums for IP cover were to remain the same, going forward, a member was only eligible for cover if they worked 14 hours per week. On the basis of this disclosure, AFCA held the trustee had appropriately advised the member of the changes it had made to the IP cover and, therefore, the trustee’s decision to not compensate the member for the years when she had paid for cover but was not eligible for it under the policy terms was fair and reasonable.

Case number 643664, dated 21 January 2020

Case 2

The trustee had introduced automatic salary continuance cover insurance (SCI) for its members that ceased 120 days after the last employer contribution was received. The member’s cover was cancelled for this reason. The complaint was about this because the member was now ill and could not get any cover.

The member had two employers making contributions to the fund but there was a period of just over six months when no employer contributions were received. The member’s SCI cover was cancelled on 8 September 2012. The member was warned of the impending cancellation in a letter that was sent to him 75 days before cover was cancelled. The member argued that he had not received this letter and more than one letter should have been sent to him. He also pointed out that he was advised he was entitled to automatic cover when he became a permanent employee of employer 2. The trustee had no record of this alleged conversation.

The first question to answer was whether the trustee was correct in cancelling the member’s cover.

Put bluntly –- the policy terms stated cover ceased after 120 days of no employer contributions. The policy had such a term to stop a member’s account balance being inappropriately eroded by the cost of insurance premiums. AFCA carefully satisfied itself that the relevant 120 days of no employer contributions did, as matter of fact, occur and, therefore, the trustee had no choice but to cancel the cover.

The trustee also sent the member a warning letter, and was able to prove the mailing of this letter and that it had not received notification of a failed delivered. On this basis, AFCA held that, on the balance of probabilities, the letter was sent and the trustee could not be at fault if the member failed to read the letter. It was noted that in similar circumstances today, a fund complying with the Insurance in Superannuation Code would have sent two warning letters to the member, but it was not fair to judge the trustee by standards introduced some six years after the events in dispute.

Other disclosures to the member also summarised the insurance terms, although it was noted the insurance booklet could have been clearer that an underwriting application was required not only if someone opted out of SCI, but also if SCI cover lapsed on the grounds of no employer contributions being made. Notwithstanding this criticism, the general principal that insurance cover was not automatic if you had previously had the same cover was adequately conveyed.

The member’s six monthly statement, after the SCI had been cancelled, clearly indicated he had no cover. It appears however that the member had not read the statement carefully because a few months later, he phoned the trustee to increase cover only to discover he had no cover at all. By this this time, the member had been diagnosed with a serious illness and getting cover for that illness was not possible.

The member pointed out that he was advised cover was automatic on becoming a permanent employee of employer 2. Here AFCA noted the member’s circumstances were somewhat unique in that he had already had cover that lapsed when he had a previous break in employment from employer 2. Under the policy terms, once cover had ceased it needed to be underwritten to commence once more. Further, even if you assumed this misrepresentation was made (which could not be proved), the remedy is to put the person in the position he would have been if the representation had not been made, and by January 2013 there was no evidence the member would have, or could have, done anything differently if he knew he had no cover. AFCA held the trustee’s decision with respect to the member’s SCI cover was fair and reasonable.

Case number – 617082, dated 5 December 2019

Picture of By Matt Daley, Jane Paskin and Vanessa Pallone

By Matt Daley, Jane Paskin and Vanessa Pallone

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Carmen Beverley-Smith

Executive Director - Superannuation, Life & Private Health Insurance, APRA

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Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Carmen joined APRA in March 2023 and holds the role of Executive Director, Life and Private Health Insurance and Superannuation.  

She has had an esteemed career in financial services, spanning over 25 years. She has held diverse leadership roles at Westpac and Commonwealth Bank of Australia, including across risk, transformation and change, product and portfolio development, and sales and service. 

Prior to joining APRA, she held the role of General Manager, Risk Transformation Delivery Integration at Westpac. This involved leading the group-wide implementation of a suite of solutions to uplift risk management capability and develop data, analytics and reporting. 

Carmen leads with a values-driven approach and a particular interest in developing and mentoring talent. 

She holds a Bachelor of Commerce and Accounting, is a certified Chartered Accountant and a Graduate of the Australian Institute of Company Directors. 

Amy C. Edmondson

Novartis Professor of Leadership and Management, Harvard Business School

Sessions

Keynote 8 – Navigating the energy transition: opportunities, investor strategies and policy needs

Amy C. Edmondson is the Novartis Professor of Leadership and Management at the Harvard Business School, a chair established to support the study of human interactions that lead to the creation of successful enterprises that contribute to the betterment of society.

Edmondson has been recognized by the biannual Thinkers50 global ranking of management thinkers since 2011, and most recently was ranked #1 in 2021 and 2023; she also received that organization’s Breakthrough Idea Award in 2019, and Talent Award in 2017.  She studies teaming, psychological safety, and organisational learning, and her articles have been published in numerous academic and management outlets, including Administrative Science Quarterly, Academy of Management Journal, Harvard Business Review and California Management Review. Her 2019 book, The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation and Growth (Wiley), has been translated into 15 languages. Her prior books – Teaming: How organizations learn, innovate and compete in the knowledge economy (Jossey-Bass, 2012), Teaming to Innovate (Jossey-Bass, 2013) and Extreme Teaming (Emerald, 2017) – explore teamwork in dynamic organisational environments. In Building the future: Big teaming for audacious innovation (Berrett-Koehler, 2016), she examines the challenges and opportunities of teaming across industries to build smart cities. 

Edmondson’s latest book, Right Kind of Wrong (Atria), builds on her prior work on psychological safety and teaming to provide a framework for thinking about, discussing, and practicing the science of failing well. First published in the US and the UK in September, 2023, the book is due to be translated into 24 additional languages, and was selected for the Financial Times and Schroders Best Business Book of the Year award.

Before her academic career, she was Director of Research at Pecos River Learning Centers, where she worked on transformational change in large companies. In the early 1980s, she worked as Chief Engineer for architect/inventor Buckminster Fuller, and her book A Fuller Explanation: The Synergetic Geometry of R. Buckminster Fuller (Birkauser Boston, 1987) clarifies Fuller’s mathematical contributions for a non-technical audience. Edmondson received her PhD in organisational behavior, AM in psychology, and AB in engineering and design from Harvard University.

 

Daniel Mulino MP

Assistant Treasurer and Minister for Financial Services

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Born in Brindisi, Italy, Daniel was a young child when he moved with his family to Australia. He grew up in Canberra and completed his first degrees – arts and law – at the ANU. He then completed a Master of Economics (University of Sydney) and a PhD in economics from Yale.

He lectured at Monash University, was an economic adviser in the Gillard government and was a Victorian MP from 2014 to 2018. As Parliamentary Secretary to the Treasurer of Victoria, Daniel helped deliver major infrastructure projects and developed innovative financing structures for community projects.

In 2018 he was preselected for the new federal seat of Fraser and became its first MP at the 2019 election, re-elected in 2022 and 2025. From 2022 to 2025, Daniel was chair of the House of Representatives’ Standing Economics Committee in which he chaired inquiries; economic dynamism, competition and business formation and insurers’ responses to 2022 major floods claims.

In 2025, he became the Assistant Treasurer and Minister for Financial Services.

In August 2022, Daniel published ‘Safety Net: The Future of Welfare in Australia’, which aims to explore the ways in which an insurance approach can improve the effectiveness of government service delivery.