A review by the Australian Securities and Investments Commission (ASIC) has found many total and permanent disability insurance products sold by super funds are nothing more than “junk”.
ASIC took aim at companies like AMP, Asteron (formerly Suncorp Life) and Westpac, saying they had higher-than-expected declined claim rates.
According to ASIC, payouts for this super-based insurance were made only in the most "catastrophic" circumstances, when people were unable to perform activities such as feeding, dressing or washing themselves.
ASIC commissioner Sean Hughes was damning in his assessment: "People that hold this type of automatic cover through superannuation are typically paying the same premium – for what is essentially junk insurance – as people who can access less restrictive definitions under general total and permanent disability insurance cover.”
ASIC said the industry would have to make "prompt changes to ensure this cover provides real value".
The Commission says superannuation trustees have a responsibility to their members.
"We expect trustees to act in their members’ best interests by providing access to affordable insurance products that are suitably designed for their members, while also safeguarding superannuation balances from inappropriate erosion.”
ASIC warns it could intervene and ban the use of "activities of daily living" definitions.
Fines ranging from $1.05 million (for individuals) to $525 million (for companies) could also be issued by ASIC, once the royal commission's recommendation surrounding supervisory powers is made law.