The Insurance in Superannuation Working Group (ISWG) has released a draft Insurance Code of Practice for superannuation trustees and a consultation paper for industry feedback.
The objective of the ISWG in developing the Code was to improve the insurance in superannuation offered to fund members, as well as trustees’ processes in providing insurance.
The Code is designed to preserve automatic cover for fund members rather than create an opt-in scheme.
One of the key objectives is that insurance offered on an automatic basis must be appropriate and affordable, and must not inappropriately erode members’ retirement income.
The Code includes a maximum premium limit that trustees must use when designing benefits for automatic cover, which is 1% of ordinary time earnings for relevant segments of the membership, and the membership generally. Trustees can determine the level of earnings they use to carry out this assessment, based on the particular characteristics of their membership, their period of membership, and relevant segments.
In addition, trustees must set their premiums for the segment of members that are under the age of 25 at a level that does not exceed 0.5% of earnings. Trustees can determine the level of earnings and the period of membership that they apply to their younger members, and they will need an evidence base to justify the assumptions made.
The Code proposes that when a new member joins a fund, the trustee must ask for permission to carry out a search for any other insurance cover that the member holds in superannuation; the purpose being to prevent someone paying premiums for benefits that are not needed or for which they may not be able to claim.
Trustees will identify where they are no longer receiving contributions for a member; this could be due to them ceasing employment, or contributing to another fund. In these situations, and also where a trustee receives very low or infrequent contributions, the trustee will communicate with the member to ensure they understand the impact of their insurance premiums on their account balance. For Automatic Insurance Members, to ensure their balance is not inappropriately eroded, cover will automatically cease where no contributions are received for 13 months if no response is provided to any of the three communications provided by the trustee.
To improve member claims experience it is proposed that the trustee is required to play a visible role in the claims process, and ensure that the person claiming receives regular updates on progress and a decision in a reasonable timeframe.