Australia: Legal poser over proposed code for insurance in superannuation
Source: Asia Insurance Review | Dec 2017
Australia Pensions & Annuities
The Association of Superannuation Funds of Australia (ASFA) has said that getting the governance of a proposed Code for insurance right in a complex environment like the superannuation industry is vital.
ASFA notes that there are a number of considerations relating to governance arrangements which need to be addressed:
- The External Dispute Resolution (EDR) framework and the body assigned the role of dealing with disputes ( Australian Financial Complaints Authority) are still in an embryonic and evolving state and much greater certainty will be required before they can contemplate their potential role in Code governance
- Questions have been raised about whether trustees can be legally bound by the Code given their statutory and fiduciary obligations and this needs to be resolved before the various governance options can be assessed.
The ASFA made the comments in a submission responding to the recommendations of the Insurance within Superannuation Working Group (ISWG) to point out the legal/legislative problems it foresees will need to be addressed before the Code can become fully applicable.
However, it suggested that one option might be for the industry associations to enter into a memorandum of understanding to determine who would take responsibility for the various activities associated with the Code.
“Another option is for one industry association to own the code and attempt to bind superannuation to it,” the submission said.
“Significant lack of clarity” – Law Council of Australia
The draft Code was released in September for public feedback by the ISWG, after a series of scandals rocked the life insurance sector. It contains a range of proposals designed to ensure super fund members’ balances are not drained by fees for unneeded insurance cover, including life, total and permanent disability and income protection.
The superannuation industry is important to life insurance because more than 70% of Australian life insurance policies – more than 13.5 million separate policies – are held through superannuation funds.
A submission by the Law Council of Australia’s superannuation committee said that fund trustees should hesitate before agreeing to be bound by the draft Code because it could be inconsistent with trustees’ legal duties under superannuation industry law. It said that there remains a significant lack of clarity about the interaction of the Code with existing law, including the role of APRA. A