The member complained about a significant increase in premiums for income protection (IP) cover. AFCA noted it had limited power to consider complaints about premium increases and, therefore, it was necessary to confine its review to whether the premium increase was properly disclosed and whether there was any breach of a legal obligation or duty on the part of the trustee or insurer.
The facts involved an increase of IP premiums by up to 48.4 per cent. The member regarded this as price gouging, an abuse of market power and collusion by both the trustee and the insurer, arguing he was ‘captive’ to the fund’s insurance offering.
Under the Corporations Act 2001 (Cth), the trustee is required to give members 30 days advance notice of any changes to fees or charges. By a letter given well within the 30 day timeframe, the trustee told members that IP premiums would be increasing due to historical claims costs, the increase in claim applications made and recent amendments to the Government’s Protecting Your Super (PYS) legislation. The trustee also reminded members to review their insurance cover and that they could change or cancel their cover at any time. On this basis, AFCA was satisfied the trustee complied with its regulatory disclosure obligations.
The trustee conducted an independent actuarial review of the premium increase against the likely premium that could have been offered in the open insurance market. This work output confirmed the insurer and the trustee’s assessment that the claims costs had “materially exceeded premiums over recent years“. This valid reason for the premium increase did not amount to a misrepresentation to the member.
The next issue to be decided was whether the trustee or insurer breached any legal duty or obligation in relation to the premium increase decisions. AFCA asked:
- whether the premium increase was permitted under the policy terms
- if the trustee had the power to vary insurance arrangements under its trust deed
- whether the insurer had exercised its power consistently with its duty of good faith, and
- if the trustee had complied with its duties.
A clause in the policy permitted the insurer to increase premiums if changes in circumstances occurred that, in the opinion of the insurer’s actuary, altered the risk insured under the policy; or if there were legislative changes that would increase the degree of risk. The PYS legislative changes, resulting in the pool of insured members decreasing, and the previous claims experience all fell within the parameters that permitted the insurer to increase premiums.
While not a contentious issue, AFCA noted clause 14 of the trust deed permitted the trustee to vary insurance arrangements.
Under the Insurance Contracts Act 1984 (Cth) the insurer is required to conduct itself with the utmost good faith and it cannot rely on a provision of the policy if it would be a failure of utmost good faith to do so. However, in this case, notice of possible premium increases was given at least three times in the trustee’s ‘Insurance in your super’ booklet. It was concluded that the ability to increase premiums was not inconsistent with the duty of utmost good faith.
Under superannuation law, the trustee must exercise its powers in the best interests of beneficiaries as a whole, and when determining an insurance strategy it must also consider the cost to all beneficiaries and must only offer insurance that does not inappropriately erode members’ retirement benefits. Additionally, the trustee by virtue of section 52(12) of the Superannuation Industry (Supervison) Act 1993 (Cth) is required to promote the financial interests of the insured members. The trustee indicated it was satisfied that its insurance offerings were one of the lowest cost in the industry, and that it had complied with its duties because it had:
- worked with the insurer to understand the effect of having fewer members with insurance due to the PYS changes
- engaged an independent actuary to assess the fund’s claim costs and provide advice on premium costs likely offered in the open market. (The actuary also reviewed the proposed premium rates and the assumptions used to set them.)
- satisfied itself that the insurer would not abnormally profit from the increase in premiums and that they were sustainable given the fund’s claims experience
- performed a retirement adequacy analysis to investigate the impact the premium increases would have on fund members’ retirement outcomes and found their projected retirement balances would not be materially impacted, and
- its insurance committee and board had reviewed the analysis before agreeing to the premium increase with the insurer.
Ultimately, there was no evidence of anti-competitive behaviour between the trustee and the insurer and they had both engaged in a proper process before increasing premiums. AFCA determined the trustee and insurer’s decisions were fair and reasonable.
Case numbers 650743 & 659856, dated 24 January 2020
The member joined an employer-sponsored plan in a master fund through his employment with his previous employer. On ceasing this employment, his account balance was transferred to the personal plan within the fund. The member alleged he was neither notified about the increased cost of the insurance premiums nor ever agreed to pay them. He sought to be reimbursed for all the premiums deducted while being a member of the personal plan, although the trustee refused to do so.
AFCA considered the following issues:
- Was the trustee allowed to transfer the complainant’s account to the personal plan?
- Did the trustee adequately disclose the transfer arrangements? and
- Was the trustee’s decision fair and reasonable?
To the first of these points, it was clear under the trust deed that the trustee had the power to transfer a member to another membership category in line with any applicable employer plan rules. The plan rules did so in this case, and this was appropriately described in the PDS given to the member on joining.
The second issue centred on whether the trustee adequately disclosed the transfer arrangements to the member on being transferred to the personal plan. He ceased work in February 2013 and was sent a letter in April advising of the transfer to the personal plan. It included a comparison sheet outlining the differences between the two plans and the option to cancel or reduce insurance cover by contacting the trustee. The member did not contact the trustee. On the basis of this disclosure, AFCA was satisfied the trustee adequately disclosed the rules for transfer.
AFCA also found the trustee appropriately disclosed details of the higher insurance premiums in the PDS sent to the member on joining the employer plan. That PDS referred to the cost of insurance cover and fees in the personal plan being higher than the costs in his employer plan.
The insurance part of the comparison sheet provided on transfer also reflected the levels of insurance cover held before and after the transfer and the applicable premium rates. The higher insurance premiums were also advised each year in the member statements.
The member commenced employment with his next employer in October 2013 and joined that employer’s plan in the same master fund. His personal plan account was then transferred to this employer plan in September 2017. The exit statement sent to him satisfied adequate disclosure of the level of insurance cover that the new employer plan provided.
Over the years the member did not advise the trustee of his address. He argued he had not received the trustee’s correspondence on transfer to the personal plan nor the annual member statements. He was, therefore, unaware of the increased premiums he was paying.
The member advised he only resided at the original address for a couple of months and he subsequently moved residences four times. He advised the original address was the home of his sister-in-law, and so he was still able to access mail. He said she advised him she never received any correspondence from the trustee.
The trustee stated it had not received any returned mail from the member and it provided AFCA with the mail house records showing the welcome letter, the transfer letter and all the annual member statements sent to the original address specified by the member’s fist employer. Upon transfer to the second employer’s plan, the member’s exit statement was sent to the address advised by the member and received by him.
On the balance of probabilities, AFCA was satisfied from the evidence that all relevant disclosure materials were sent to the addresses advised to the trustee at the relevant points in time. Even though the material may not have reached the member, it was not the fault of the trustee.
On this basis, AFCA determined the decision of the trustee not to refund the member’s premiums was fair and reasonable in its operation.
Case number 633484, dated 30 January 2020