The Commission heard evidence from Mr Sainsbury.[1]
Three issues were examined in the course of Mr Sainsbury’s evidence. They were: the charging of higher premiums for delinked members where AMP is not aware of the member’s smoker status, AMP’s processes for ceasing to charge premiums once notified of a member’s death, and the provision of default insurance to MySuper members.
6.2.1Delinked members and smoker rates
A delinked employee is a fund member who was previously part of an employer superannuation plan, but was transferred to another plan after ceasing employment with the employer.[2]
AMP defaulted delinked employees to a standard insurance rate.[3] Delinked employees were defaulted to this rate, Mr Sainsbury said, because AMP did not have a full understanding of the health of those members.[4]
Mr Sainsbury described the standard rate as being different to an ‘actual smoker rate’, although he accepted that for group life policies there were only two rates: the standard rate and the non-smoker rate.[5] He also accepted that the only criterion applied in order to move a member from the standard rate to the non-smoker rate was the submission by the member of a non-smoker declaration.[6] Mr Sainsbury agreed that what he called ‘the nuanced differences’ between the rates would be difficult for a member to understand.[7]
The issues in connection with default insurance rates for delinked members were examined, in part, by reference to a particular case. A delinked employee, who was a non-smoker, was informed by his financial adviser that he had been classified as a smoker.[8] Until that point, the member was unaware that he was classified as a smoker.[9] It was not stated on his annual statement.[10] At the time of the discovery, the member was being charged $2,600 in premiums per month.[11] The premium reduced to $1,600 per month on the member’s reclassification as a non‑smoker.[12]
Until then, the member had been charged almost $77,000 in additional premiums.[13] AMP declined to refund this amount to the member on the basis that its records showed that the member was issued with the non-smoker declaration at the time of his delinking, and that it had ‘clearly’ explained what would happen to his insurance once he left his employer.[14] This was the only occasion where the matter was drawn squarely to the member’s attention.
Internal AMP documents of 2013 described AMP’s failure to include the ‘smoker status’ in its annual statements as ‘unethical’.[15] Mr Sainsbury did not agree that it was unethical to fail to include the smoker status in annual member statements[16] because members received a welcome letter on delinking, and were given an opportunity at that stage to elect non-smoking rates.[17]
The member subsequently lodged a complaint with the Superannuation Complaints Tribunal.[18] AMP’s position remained that it had acted appropriately and should not be required to refund the additional premiums.[19] The Tribunal held that AMP had not acted fairly and reasonably in refusing to refund the customer.[20]
Mr Sainsbury accepted that it would have been better if annual statements disclosed the smoker status – particularly in circumstances where there was a very significant difference in the premium.[21] In 2013 member statements were ’enhanced’ to show the member whether or not they had been classified as a smoker for the purposes of their insurance policy.[22]
Mr Sainsbury was familiar with ASIC Report 529, entitled Member Experience of Superannuation, in which ASIC expressed the view that only 14.5% of adults were daily smokers, and that, in these circumstances, it was statistically appropriate to assume a person is not a smoker in the absence of other information about that member or group of members.[23] Mr Sainsbury was not aware of the trustees taking any step to implement that recommendation.[24]
In its written submissions, AMP resisted any finding that premiums were charged to members on a statistically inappropriate basis.[25] In large part it did so by relying on facts and information not in evidence.[26] It did that despite questions being put to AMP regarding smoker default settings on two occasions in the weeks before the sixth round of hearings commenced.[27]
AMP could not have been in doubt that issues connected with default settings and life premiums were of interest to the Commission. The questions put to AMP in Rubric 6-69 directly raised the issue of smoker status and default settings. AMP chose to respond with short answers.[28] Mr Sainsbury’s statement explained that hybrid rates usually apply where no non-smoking declaration is made.[29] He explained the hybrid category as reflecting a group of customers where a portion are smokers and a portion are non-smokers.[30] He also explained that premiums for the hybrid category fall between the smoker and non-smoker premium rates.[31] No further explanation was given of the method of calculation, for example, by demonstrating how the hybrid rate accounted for smoking rates and why that was statistically appropriate.
Having followed the course it did, I cannot form any concluded view about the force of the additional material AMP supplied so late in the day. Regardless of whether there was some arguable basis for charging the rates it did to persons who had not declared themselves not to be smokers, AMP’s conduct in not disclosing the bases on which the particular premium was charged to this member merit the criticisms levelled against AMP.
What this part of the case study showed
In the case that proceeded to the Superannuation Complaints Tribunal, AMP did not communicate with the member in an effective way that he was being charged a higher premium because a non-smoking declaration had not been completed. Given the very significant differential in the premiums, it was incumbent on AMP to communicate that fact in a comprehensible way at reasonably regular intervals. It failed to do so. AMP’s conduct fell below community standards and expectations.
The state of the evidence does not permit me to make findings that AMP may have engaged in misconduct or conduct falling below community standards and expectations beyond the case of the specific member. What can be said at a more general level is if a trustee did not ensure that the rates charged to members were based on appropriate statistical assumptions, the trustee’s conduct would likely amount to a breach of one or more of the grounds set out in sections 52(2)(b) and (c) of the SIS Act. It would also be conduct falling below community standards and expectations.
The case study emphasised the importance of fee-related decisions, and the basis for those decisions, being communicated in an effective way both to staff and to customers. The evidence demonstrated that some staff within AMP thought the rate charged to members who had not completed a non-smoking declaration was a smoker rate.[32] That is unsurprising given that the only step that needed to be taken to be paid a lesser rate was to complete the declaration. And some of AMP’s own communications appeared to confuse the issue.[33]
6.2.2The charging and refunding of premiums to deceased members’ accounts
The second issue examined in Mr Sainsbury’s evidence concerned group life premiums charged to deceased members.
In April 2018, AMP identified that life insurance premiums were continuing to be deducted from deceased members’ accounts, and that after payment of a death benefit, refunds were not being processed to deceased members’ accounts.[34] AMP had investigated this issue after evidence given by CBA at the Commission’s second round of hearings, concerning fees being charged to deceased customers.[35]
On 26 June 2018, AMP notified ASIC and APRA that it had breached section 912A(1)(c) of the Corporations Act and sections 29VC and 52(2)(b) of the SIS Act because insurance premiums charged after the member’s death were either not refunded, or the refunded amount was incorrect.[36] That breach notification identified 3,124 members with a total of $922,902 in premium refunds owing.[37] AMP said that it determined the matter was reportable under section 912D of the Corporations Act (and section 29JA of the SIS Act) on 12 June 2018.[38]
As at 5 September 2018, AMP had identified that 4,645 customers were affected by this issue, with $1.3 million in premium refunds owing.[39]
The potential breaches identified by AMP Super were described as failures to refund premiums.[40] The potential breaches were not said to relate to the charging of premiums to deceased members.[41] In the course of Mr Sainsbury’s evidence, the anterior question of AMP Super’s right to deduct premiums from a deceased member’s account where AMP had been notified of the death was explored.
As the potential breaches have been reported to ASIC and APRA, it is not necessary for me to make any referral.
In its submissions, AMP accepted that before July 2018, its process for some corporate superannuation products – the submissions do not identify which products or the total number of members across those products – was to stop deducting premiums ‘only on finalisation of the claim’.[42] Premiums charged between the date of death and the date of finalisation of the claim were later refunded to the member’s account (save for those cases identified in the breach reports).[43]
The issue of continuing to deduct life insurance premiums from deceased members’ accounts had been raised within AMP in 2016.
A reversal of premiums was requested in respect of a particular deceased member in an internal email dated 8 June 2016.[44] AMP had been notified of the member’s death in February 2015, but was still deducting premiums from the member’s account at the date of the email.[45] The reversal request prompted another AMP staff member to query why the premiums were still being deducted.[46] That query was met with the response that ‘the current process is to charge until the claim is processed, which triggers a refund’.[47]
Mr Sainsbury was asked if he understood AMP to have a continuing entitlement to charge premiums once a member passed away.[48] He answered: ‘No. That’s not our practice. It’s not our policy’.[49] But until recently it was both AMP’s practice and policy to continue to deduct premiums until the life insurance claim was finalised.
In July 2018, AMP changed that process.[50] Its current process was explained as follows: ‘AMP reverses any premiums, which were paid after the date of death and prior to AMP being notified of the death, to the superannuation account before any amount is made available to the beneficiary’.[51] This process was said to result in the member’s account being restored to the position it would have been in had no post-death deductions occurred and to account ‘for the time value of money (ie – any investment gains or losses or interest, as applicable)’.[52]
How the time value of money is accounted for, and whether it was accounted for in the previous process, is not entirely clear. There was no evidence directed to that issue and the above explanation raises a number of questions. It is enough to say that any process that failed to restore the member’s account to the position that it would have been in but for the post-death deductions would be unarguably unfair to the beneficiary of the funds.
What this part of the case study showed
In its submissions AMP appeared to acknowledge that it had no entitlement to premium payments from a member’s account after the member had died, stating that its ‘policy at all times had been that the liability to pay premiums on a life insurance policy ceases on the date of death’.[53] It then submitted that both its current process and its previous process are compliant with the Corporations Act and the SIS Act ‘and reflect the proper conduct of a prudent trustee’.[54]
That submission is at odds with AMP’s earlier statement – reflected in the evidence of Mr Sainsbury – that liability to pay premiums ceases on death. Indeed it appears to assume a continuing right in AMP to deduct premiums after death and how an insurer could be entitled to charge life insurance premiums after the life insured has died was not, and could not be, explained.
Unsurprisingly AMP did not point to any contractual right to continue deducting premiums once it has been notified of a member’s death, and AMP accepts that the liability of members to pay premiums on a life insurance policy ceases on the date of death. It follows that the wrongful deduction of funds from member accounts was inherent in AMP’s previous process of continuing to deduct premiums for some corporate superannuation plans until the claim was finalised. That the funds were subsequently refunded lessens the harm. But it does not cure the breach.
At a minimum, the previous process meant that one or more of AMP Super and AMP Life may have engaged in misconduct by failing to provide financial services to members efficiently, honestly and fairly as required by section 912A(1)(a) of the Corporations Act.[55] AMP Super may also have engaged in misconduct by breaching the duty imposed by the caveat set out in section 52(2)(b) of the SIS Act to act with the skill and diligence of a prudent trustee.
That leaves the breaches reported to APRA and ASIC concerning the failure to refund premiums charged after the death of a member. In its submissions, AMP explained that the breach notification related to specific conduct and did not raise any issue in respect of AMP’s policy or its previous process ‘as a whole’.[56] The errors were said to have been caused ‘as a consequence of process and human error’.[57]
In the breach report to ASIC, AMP identified that AMP Super had breached sections 29VC and 52(2)(b) of the SIS Act and sections 912A(1)(a) and (c) of the Corporations Act. [58] The breach report also advised that AMP Life had breached section 912A(1)(a) of the Corporations Act.[59] I find that AMP Super and AMP Life may have engaged in misconduct by breaching each of those sections.
6.2.3Breach of trustee obligation to provide insurance
The third issue explored in this case study concerned the obligation imposed on trustees by section 68AA of the SIS Act to ensure that the fund provides, relevantly, permanent incapacity benefit to each MySuper member of the fund on an opt-out basis.
One of the topics addressed in Mr Sainsbury’s second statement was the case of an AMP Super MySuper member, who was not provided with insurance.[60] The member was a delinked employee and lost his insurance coverage when he ceased employment with his employer.[61] At the time of the delinking, the MySuper regime was not in place.[62]
The issue came to the member’s attention after he was diagnosed with a very serious illness and sought to claim on the group life policy.[63] After being informed that there was no life insurance attached to the superannuation account, the member’s wife wrote to Craig Meller, the then CEO of AMP.[64] Mr Meller referred the matter to AMP’s Customer Advocate.[65]
Mr Sainsbury accepted that at the relevant time, the member was a MySuper member.[66] AMP Super had determined that it was not appropriate to provide insurance to the member because, when he was delinked, a welcome call had been made to him that ‘talked about him not having insurance cover in place’, and on that basis he was deemed to have opted out.[67] The member was then in a category of members who were not offered insurance as part of the transition to MySuper.[68]
That position was repeated in AMP’s submissions, which noted that section 68AA of the SIS Act permits the trustee to determine reasonable conditions to which the provision of permanent incapacity or death benefits will be subject.[69] The submissions also relied upon legal advice – said to have been provided to APRA, but not in evidence – that concluded that the conduct was not in contravention of section 68AA.[70]
The AMP Customer Advocate did not agree. The Customer Advocate concluded that the member should have been provided with insurance.[71] The trustee does not agree with the Customer Advocate’s conclusion and does not consider that the trustee breached any obligation owed to the member.[72] Notwithstanding that, Mr Sainsbury said that the trustee considered the Customer Advocate’s decision to be ‘appropriate’.[73]
An ex gratia payment was made to the member on the recommendation of the Customer Advocate.[74] In its submissions, AMP sought to add some additional facts – which it had not led from Mr Sainsbury or otherwise sought to tender into evidence – about the payments made to the member and the timing of those payments.[75] It is not necessary to take that additional information into account in order to form the view that the Customer Advocate’s role was central to the member obtaining the result that he did.
AMP subsequently commenced an investigation into whether other MySuper members had not been provided with insurance.[76] AMP Super issued a ‘possible’ breach notification to APRA and ASIC about the issue on 4 June 2018.[77] APRA rejected that letter and invited a formal breach notification from AMP Super.[78] That notification was provided on 10 August 2018.[79] The notification said that AMP was in the process of satisfying itself that the non-provision of insurance to 1,600 MySuper members was appropriate.[80] Mr Sainsbury said that it would take another month or two until AMP Super would reach a view on this issue.[81]
As the potential breaches have been reported to ASIC and APRA, it is not necessary for me to make any referral.
What this part of the case study showed
This aspect of the case study drew out two points. The first is the need for trustees to pay close attention to the insurance position of MySuper members, particularly those who transitioned to a MySuper product from a corporate plan or from a plan that did not have insurance attached to it. The second was the benefits of having an internal office dedicated to advocating in the interest of the customer.
Given that the investigation remained ongoing at the time of the hearings, and the complexities inherent in the particular member’s case, I need not make any specific findings of misconduct or conduct falling below community standards and expectations in respect of this issue.
[1] Transcript, Paul Sainsbury, 17 September 2018, 5861.
[2] Transcript, Paul Sainsbury, 17 September 2018, 5864.
[3] Transcript, Paul Sainsbury, 17 September 2018, 5865.
[4] Transcript, Paul Sainsbury, 17 September 2018, 5865.
[5] Transcript, Paul Sainsbury, 17 September 2018, 5868–70, 5875.
[6] Transcript, Paul Sainsbury, 17 September 2018, 5875.
[7] Transcript, Paul Sainsbury, 17 September 2018, 5871.
[8] Transcript, Paul Sainsbury, 17 September 2018, 5864; Exhibit 6.236, 27 February 2013, Email Financial Planner to Planner Liaison.
[9] Transcript, Paul Sainsbury, 17 September 2018, 5864.
[10] Transcript, Paul Sainsbury, 17 September 2018, 5864.
[11] Transcript, Paul Sainsbury, 17 September 2018, 5864.
[12] Transcript, Paul Sainsbury, 17 September 2018, 5864.
[13] Transcript, Paul Sainsbury, 17 September 2018, 5866, 5877; Exhibit 6.242, 6 June 2014, AMP Premium Comparison Calculation.
[14] Transcript, Paul Sainsbury, 17 September 2018, 5870–3; Exhibit 6.238, 15 March 2013, Letter AMP to Member Concerning ‘Your Inquiry’; Exhibit 6.239, 14 October 2013, Internal AMP Emails Concerning SCT Complaint, September 2013.
[15] Transcript, Paul Sainsbury, 17 September 2018, 5866; Exhibit 6.237, undated, Request for Reversal of Premium.
[16] Transcript, Paul Sainsbury, 17 September 2018, 5866–7.
[17] Transcript, Paul Sainsbury, 17 September 2018, 5866.
[18] Exhibit 6.244, 6 May 2015, SCT Determination of Complaint; Exhibit 6.239, September 2013, Internal AMP Emails Concerning SCT Complaint.
[19] Exhibit 6.244, 6 May 2015, SCT Determination of Complaint, 8 [46]; Exhibit 6.239, September 2013, Internal AMP Emails Concerning SCT Complaint.
[20] Exhibit 6.244, 6 May 2015, SCT Determination of Complaint, 8–9.
[21] Transcript, Paul Sainsbury, 17 September 2018, 5867.
[22] Transcript, Paul Sainsbury, 17 September 2018, 5878.
[23] Transcript, Paul Sainsbury, 17 September 2018, 5881–2.
[24] Transcript, Paul Sainsbury, 17 September 2018, 5882–3.
[25] AMP, Module 6 Case Study Submission, 7–8 [34]–[38].
[26] AMP, Module 6 Case Study Submission, 7–8 [34]–[38].
[27] The questions were first put to AMP on 16 August 2018 in the form of questions 11 to 15 of Rubric 6–69. See Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018, 1 [1]. Additional questions 12A to 12C were then included by email dated 5 September 2018, and are answered in Mr Sainsbury’s statement (Exhibit 6.234).
[28] Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018, 9–13 [35(b)], [42], [47], [48], [52], [53].
[29] Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018, 9 [35(c)].
[30] Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018, 9 [35(b)].
[31] Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018, 9 [35(b)].
[32] See, eg, Transcript, Paul Sainsbury, 17 September 2018, 5877.
[33] See, eg, Exhibit 6.239, September 2013, Internal AMP Emails Concerning SCT Complaint; Transcript, Paul Sainsbury, 17 September 2018, 5873–4.
[34] Transcript, Paul Sainsbury, 17 September 2018, 5883.
[35] Transcript, Paul Sainsbury, 17 September 2018, 5891.
[36] Transcript, Paul Sainsbury, 17 September 2018, 5884; Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018, Exhibit PJS-2 (Tab 3) [AMP.6000.0281.0046 at .0046].
[37] Transcript, Paul Sainsbury, 17 September 2018, 5884; Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018, Exhibit PJS-2 (Tab 3) [AMP.6000.0281.0046 at .0046].
[38] Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018, Exhibit PJS-2 (Tab 3) [AMP.6000.0281.0046 at .0047].
[39] Transcript, Paul Sainsbury, 17 September 2018, 5892.
[40] Transcript, Paul Sainsbury, 17 September 2018, 5884; Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018, Exhibit PJS-2 (Tab 3) [AMP.6000.0281.0046].
[41] Transcript, Paul Sainsbury, 17 September 2018, 5889–91.
[42] AMP, Module 6 Case Study Submission, 13 [59].
[43] AMP, Module 6 Case Study Submission, 13 [60].
[44] Exhibit 6.246, 2016–2018, AMP Emails, April and July 16, 2–4.
[45] Exhibit 6.246, 2016–2018, AMP Emails, April and July 16, 2–4.
[46] Exhibit 6.246, 2016–2018, AMP Emails, April and July 16, 2.
[47] Exhibit 6.246, 2016–2018, AMP Emails, April and July 16, 2; see also Transcript, Paul Sainsbury, 17 September 2018, 5886–7.
[48] Transcript, Paul Sainsbury, 17 September 2018, 5891.
[49] Transcript, Paul Sainsbury, 17 September 2018, 5891.
[50] AMP, Module 6 Case Study Submission, 13 [59].
[51] AMP, Module 6 Case Study Submission, 12 [57(c)].
[52] AMP, Module 6 Case Study Submission, 12 [57(c)].
[53] AMP, Module 6 Case Study Submission, 12 [56].
[54] AMP, Module 6 Case Study Submission, 12 [61].
[55] See Corporations Act ss 766A(1)(b), 766C(1)(a) and (b) and 763A(1)(a) and (b).
[56] AMP, Module 6 Case Study Submission, 13 [60].
[57] AMP, Module 6 Case Study Submission, 13 [60].
[58] Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018, Exhibit PJS-2 (Tab 3) [AMP.6000.0281.0046].
[59] Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018, Exhibit PJS-2 (Tab 3) [AMP.6000.0281.0046].
[60] Exhibit 6.234, Witness statement of Paul Sainsbury, 5 September 2018; Transcript, Paul Sainsbury, 17 September 2018, 5893; Exhibit 6.247, 6 December 2017, Letter to Craig Meller.
[61] Exhibit 6.247, 6 December 2017, Letter to Mr Meller, CEO.
[62] Transcript, Paul Sainsbury, 17 September 2018, 5894.
[63] Transcript, Paul Sainsbury, 17 September 2018, 5892–3.
[64] Exhibit 6.247, 6 December 2017, Letter to Mr Meller, CEO.
[65] Transcript, Paul Sainsbury, 17 September 2018, 5893.
[66] Transcript, Paul Sainsbury, 17 September 2018, 5894.
[67] Transcript, Paul Sainsbury, 17 September 2018, 5895.
[68] Transcript, Paul Sainsbury, 17 September 2018, 5894–5.
[69] AMP, Module 6 Case Study Submission, 17 [81].
[70] AMP, Module 6 Case Study Submission, 17 [83]–[84].
[71] Transcript, Paul Sainsbury, 17 September 2018, 5895.
[72] Transcript, Paul Sainsbury, 17 September 2018, 5895.
[73] Transcript, Paul Sainsbury, 17 September 2018, 5895.
[74] Transcript, Paul Jon Sainsbury, 17 September 2018, 5895–6.
[75] AMP, Module 6 Case Study Submission, 18 [93], 18–19 [95].
[76] Transcript, Paul Sainsbury, 17 September 2018, 5896.
[77] Transcript, Paul Sainsbury, 17 September 2018, 5896.
[78] Transcript, Paul Sainsbury, 17 September 2018, 5896.
[79] Exhibit 6.249, 10 August 2018, Letter AMP to APRA.
[80] Transcript, Paul Sainsbury, 17 September 2018, 5896; Exhibit 6.249, 10 August 2018, Letter AMP to APRA.
[81] Transcript, Paul Sainsbury, 17 September 2018, 5897.