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BFCSA: Super managers’ credibility goes up in smoke: Kenneth Hayne’s royal commission to further up-end the sector.

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Super managers’ credibility goes up in smoke

The Australian 12:00am September 8, 2018

Michael Roddan

 

The wealth management industry has been revealed to be taking advantage of superannuation retirement savings by automatically putting members into high-premium life insurance policies designed to cover smokers.

The new evidence of further gouging in the nation’s $2.7 trillion superannuation sector comes ahead of the royal commission’s next fortnight of public hearings, which will focus on the scandal-ridden life insurance sector.

It’s the latest reputational blow to the under-pressure life industry, which is having its revenue models torn apart by regulators, politicians and consumer groups after years of reaping billions of dollars in revenue from unsuspecting superannuation savers.

The industry has also been on tenterhooks over the potential for Kenneth Hayne’s royal commission to further up-end the sector.

ClearView chief risk officer Gregory Martin will take the stand at the hearing on Monday, and is likely to be questioned on his company’s “direct” life insurance business, which was closed down after the corporate watchdog raised concerns about high-pressure sales tactics.

But while profit margins in life insurance have been crunched over the past decade, culminating in attempted exits from the industry by Commonwealth Bank, ANZ, National Australia Bank and AMP, regulators are still uncovering poor claims practices and objectionable policy conditions foisted on unassuming customers.

Hong Kong giant AIA Group and Japan-based insurer TAL will soon control 50 per cent of the local life insurance market.

“The life insurance market, especially with the introduction of global players, has tried very hard to be more customer-focused and offer better-priced policies for its members,” industry veteran Jim Minto said.

But he said the superannuation sector had far more work to do to ensure members were getting good outcomes.

“When you add up all the fees it is horrendous and people don’t know about it and it erodes the net returns,” he told The Weekend Australian.

About 70 per cent of all life insurance policies in Australia are held through superannuation funds, where cover is provided to members on a default opt-out basis. The scheme has been an enormous money spinner for the life insurance industry, which sucks in about $13 billion worth of policy premiums each year from savers, who are often unaware they are paying for the cover.

A recent survey showed 24 per cent did not know if they held insurance through their superannuation.

The Australian Securities & Investments Commission yesterday said it had got the super sector and the life insurance industry to stop defaulting members as smokers when there was an absence of information about whether they smoked or not. Smokers were charged significantly higher premiums than non-smokers, and ASIC said the rip-off “unfairly eroded” member retirement savings.

ASIC deputy chairman Peter Kell said there was considerable work to do to raise standards in the life insurance and super sectors. ASIC found wide variation in the definitions used by the life insurance industry, which prevented customers from under­stand­ing and comparing products.

The industry’s attempt to govern itself with the creation of two separate, but legally ambiguous, codes of conduct over the past two years was also criticised, and ASIC said the sectors’ code of conduct contained “significant weaknesses”.

“In the coming months, ASIC will be focused on ensuring that members do not experience adverse outcomes arising from poor complaints handling or inappropriate defaults,” Mr Kell said.

Some of Australia’s largest insurers will be grilled by the royal commission about problems with the sale of life and general policies and the handling of claims. AMP, Clearview, the Commonwealth Bank’s CommInsure, Freedom Insurance, REST and TAL are set to be quizzed about life insurance.

But a cloud hung over the future of the industry before the royal commission began its investigation. The claims-handling scandal at CommInsure in 2016 brought significant focus on to a poorly understood but lucrative side of the wealth management industry. An 18-month-long parliamentary investigation into the scandal-ridden sector had since found bonuses and “hidden ­payments” led to bad advice and policies that were sold poorly to customers.

Members of parliament are now pushing for a raft of reforms to clean up the sector, including removing the industry’s exemption from parts of consumer law, a tougher code of conduct compliance, a bundle of watchdog investigations into behaviour and greater powers for regulators.

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