The Financial Services Council (FSC) has started a consultation exercise to work towards the removal of occupational exclusions in default group life insurance policies.

The FSC released a policy consultation paper on the matter last week in a move to address stakeholder concerns that the Government’s recent superannuation reforms may leave some policyholders without cover.

A key thrust of the reforms involves “stapling” workers to a single superannuation account, a move the Government says will save Australians from paying unnecessary fees and group premiums.

FSC backs the “stapling” measure, but consumer advocates and actuaries have flagged concerns that it will lead to some workers who are in hazardous occupations losing out on critical insurance protection.

The FSC consultation paper proposes to introduce a prohibition on the use of any terms in MySuper group life policies that would cause a claim to be declined in default group life insurance in superannuation on the basis of a change in the occupational classification of the member.

It has put up three mechanisms for consideration to implement the proposed prohibition. One involves the creation of an enforceable standard that requires FSC members to not establish group policies that contain these terms, and remove them from existing policies.

“In a small number of instances when an employee moves between occupational classifications, at time of claim they may find themselves unable to claim against their default insurance coverage in the MySuper product,” FSC said.

“This concern was raised by stakeholders during parliamentary debate, and the FSC and life insurance industry agree that it is in the best interests of consumers to design a solution, now that stapling is legislated to take effect from November 1.”

The FSC says it is seeking feedback from industry, consumer groups and the public. It is also consulting with the Australian Competition and Consumer Commission, Australian Securities and Investments Commission and Australian Prudential Regulation Authority.

Super Consumers Australia Xavier O’Halloran says occupational exclusions are often hidden deep in product disclosure statements for default policies that policyholders are not aware of until they need to make a claim.

And in other cases, the occupational exclusion list is contained in another document that requires consumers to search for it.

“Finally, some funds claimed they would only apply the tests in a limited way going forward, despite their consumer disclosures stating that certain occupations were excluded,” Mr O’Halloran told insuranceNEWS.com.au.

“None of this gives consumers adequate assurance that if they come to claim that they’ll be adequately protected.”

Closing date for submissions is September 3.

Click here for the consultation paper.