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ASIC flags offset clauses concerns after group income protection review

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Offset clauses in default group income protection (IP) insurance policies are set for increased scrutiny next year, the Australian Securities and Investments Commission (ASIC) says, after its review found the use of such provisions may affect consumer outcomes.

The review says trustees need to examine outcomes for their members and proactively consider whether they are delivering value for money through their insurance in superannuation offering.

Offset clauses in IP insurance are intended to reduce incentives for members to delay their return to work as a result of receiving more income while disabled than they did previously.

ASIC says while most IP policies contain offset clauses, the review found trustees were not “proactively” explaining to members about what it means if they need to make a claim.

“This information is relevant to members in considering whether they should opt-out of default IP insurance,” Commissioner Danielle Press said. “It is also useful when members are making an insurance claim.

‘Moreover, the offset clauses we saw have raised questions about whether trustees should be doing more to identify if there are groups of members who may be getting low value from default IP insurance.”

She says ASIC’s concern “is not that offset clauses exist” but the “potential for insurance premiums to unnecessarily erode members’ superannuation balances if offset clauses mean that particular groups of members get very little value from their default insurance if they need to claim.”

The ASIC review looked into the practices of the trustees of five large funds that provided default IP insurance on an opt-out basis to their members. These five trustees provide IP insurance to about two million MySuper member accounts as at June.

ASIC says the review found no evidence that the trustees had rigorously analysed how their offset clauses affect member outcomes and that disclosures about offset clauses were incomplete and difficult to understand.

There was also variation in the types of income that were offset against IP benefits.

ASIC says next year it will undertake a surveillance on the progress made by industry more broadly in insurance in superannuation. As part of this work, ASIC will be seeking from life insurers comparable and reliable data relating to IP offsets.

ASIC has written to the five trustees outlining specific findings and areas for improvement.

“I strongly encourage trustees to consider these findings alongside the issues we previously raised regarding default insurance and take meaningful steps to enhance member outcomes,” Ms Press said.