The case study demonstrated the complexities faced by the administration of a group life insurance scheme within a large superannuation fund. It also demonstrated the profound effects for individual members from policy wording negotiated by superannuation trustees and group life insurers.
A point that emerged strongly from the evidence is that there are benefits to be gained from simplicity in key definitions, terms and exclusions. The simpler the term, the more readily it can be conveyed to members and the greater the prospect of members having an understanding of the extent of the cover.
Because group life insurance is, by definition, provided without advice and because it is attached to a passive and very long-term investment, the need for simplicity in the product and the effective communication of terms is heightened. Multi-limbed definitions that operate in combination with other definitions will always be more difficult for a trustee to explain, and for a member to comprehend, than a unitary definition.
Conversely, a definition of clear application – such as a prescribed minimum balance clause that operates without the engagement of other definitions – will be more readily capable of comprehension, provided the substance of the clause is clearly conveyed to a member in an appropriate way and with appropriate regularity.
It is important to recognise that group life insurance through superannuation – perhaps even more so in the case of large scale funds with a broad range of members – is radically removed from a policy of insurance bought directly by a consumer and even more so than a policy taken out on advice.
None of that is to ignore that product pricing looms large in any negotiation or that changes to policy wording will sometimes have pricing effects. But it should also be remembered that the difficulties borne of complexity are not only a risk to the member. Complexities in policy terms generate complexity in policy administration.
Some of those complexities were demonstrated in the course of the case study. One was the difficulty in communicating accurately with members. Not infrequently REST has communicated with members in a way that did not accurately reflect the terms of the Group Life Policy.[1] REST disclosed 52 separate miscommunication incidents affecting more than 48,500 members.[2]
Mr Ross accepted that the operation of the minimum balance and prescribed employment status clauses made it complicated to communicate with members about their level of cover, and that this was one of the reasons that REST removed the prescribed minimum balance clause in December 2017.[3]
REST’s submissions acknowledged both the importance of, and the difficulty in, communicating with members about aspects of group life insurance. REST said that ‘there are many provisions of an insurance policy which will potentially be of critical importance to members, and there is no obvious means of communicating all of these provisions in another, easier to understand manner. This is a problem which is easy to identify but a perfect solution is elusive’.[4]
REST also noted that it could not ‘compel members to take an interest in their insurance arrangements’.[5] So much may be accepted. But the circumstances in which group life cover is offered, including the statutory requirements for the provision of some types of cover to MySuper members,[6] mean that it would be wrong for trustees to ‘assume that members will appreciate the value of the insurance cover provided to them … and take an active interest in its management’, as REST does.[7]
Moreover, because premiums are deducted from member accounts, and because the purpose of those accounts is ultimately to provide an income in retirement, superannuation trustees should be vigilant in ascertaining that the premiums deducted are in fact payable by the member before the deduction is made. The standard is not one of perfection, but it is not adequate for trustees to assume that the data provided to them is correct, especially in the face of contrary evidence (for example, the absence of contributions for a period of time).
Continuing to deduct insurance premiums when a person is no longer covered by insurance may constitute a failure to perform the trustee’s duties and exercise the trustee’s powers in the best interests of the beneficiaries as required under section 52(2)(c) of the SIS Act. It may also constitute conduct falling below community standards and expectations.[8] I make no finding that REST has engaged in misconduct or conduct falling below community standards and expectations of that type here. A more wide-ranging investigation would have been necessary in order for me to be satisfied of the relevant facts. The approach taken in the case study was to interrogate practices by reference to specific cases. That provided a useful lens through which to view the operation of the various clauses and practices, but does not cover sufficient factual ground to permit findings concerning section 52(2)(c).
Failing to communicate with members about key exclusions in a way that is likely to be comprehensible by most members, and with reasonable frequency, may also amount to conduct falling below community standards and expectations.[9] Again, I need not make any specific findings about REST’s communications here.
[1] Exhibit 6.229, Witness statement of Natalie Binns, 31 August 2018, 36 [47], Exhibit NSB-37 [RST.0009.0004.3502].
[2] Exhibit 6.229, Witness statement of Natalie Binns, 31 August 2018, Exhibit NSB-37 [RST.0009.0004.3502].
[3] Transcript, Lachlan Ross, 14 September 2018, 5816.
[4] REST, Module 6 Case Study Submission, 12–13 [56].
[5] REST, Module 6 Case Study Submission, 13 [57].
[6] SIS Act s 68AA.
[7] REST, Module 6 Case Study Submission, 13 [57].
[8] Such conduct will constitute a breach of cls 4.24, 4.25 and 4.27 of the Insurance in Superannuation Voluntary Code of Practice once it comes into force.
[9] This conduct would constitute a breach of cl 5.17 of the Insurance in Superannuation Voluntary Code of Practice once it comes into force.