Thousands of group life insurance policies could be cancelled as members consolidate their super accounts, an expert says.

Consolidation proposals under MySuper will see this happen automatically, says Corporate Super Specialists Alliance (CSSA) President Douglas Latto.

“When a member puts in their tax file number to join a fund, it will list all their current super accounts,” he told insuranceNEWS.com.au.

“The member can then click to consolidate their accounts and the insurance component in those funds will be lost.”

According to CSSA research, 70% of members with super account balances of $1000 or less have some form of insurance provided by the fund. This rises to 81% among members with super account balances up to $10,000.

“Under auto-consolidation, all this insurance will be lost,” Mr Latto said.

It is not known how many members have low balances but Ausfund – a rollover fund for small, inactive super accounts – is holding $500 million on behalf of 1.5 million account-holders.

Meanwhile, the CSSA has called on Treasury to give details of insurance grandfathering provisions in MySuper. (Grandfathering arises when an old law continues to apply to existing situations after a new law is introduced.)

“The Government has announced that MySuper legislation will apply from July 1 2013 but, to date, Treasury has not provided any detail relating to grandfathering,” Mr Latto said.

“The only announcement Treasury has made is that it intends to make an announcement.”

He says there are four ways insurance grandfathering could be applied to group super.

“The first is we continue with the current arrangements, including commission payments, and they are grandfathered.

“Alternatively, any new companies joining a corporate scheme would be excluded from the grandfathering of existing insurance arrangements.”

Mr Latto says one option is to exclude new members from joining a corporate super scheme – an option most likely to be taken up by Treasury.

He says the worst scenario for grandfathering would be to let the back-office administration provider choose which corporate super fund will pay the premiums.

“If there are a number of funds on the same company account, the administrator would choose, cutting out the specialist adviser who has the relationship with the client,” he said.

“But we don’t know what grandfathering model Treasury wants to use, so we cannot prepare our systems to handle the possible changes.”

Mr Latto says this is why the CSSA and other financial services bodies are pushing for the start date to be moved from July 1 next year to 2014.

“The uncertainty is stopping our members planning for the future legislation,” he said.

“The Government must realise it takes a long time to change the systems used to administer these super accounts.”