The Australian Securities and Investments Commission (ASIC) has described the lack of compulsion around the insurance inside superannuation code of conduct as being a “significant weakness”.
In a submission to the Productivity Commission inquiry into superannuation efficiency and competitiveness, ASIC said that while it believed that with broad industry commitment and effective monitoring and enforcement arrangements codes could support higher standards, it had had issues with the insurance inside super code.
“ASIC notes that, at present, there are significant weaknesses in the current Insurance in Superannuation Voluntary Code of Practice, including around its monitoring and enforcement, that limit is potential effectiveness,” the regulator said.
“ASIC will work with APRA to monitor the implementation and coverage of the code,” it said. “However, we note there are challenges for effective self-regulation in relation to Insurance in Superannuation.”
It said the superannuation sector had a number of characteristics which had traditionally limited the prospects for successful industry codes, particularly in the absence of supporting legislative intervention.
“These include:
(a) there are multiple, competing industry associations
(b) the superannuation industry has a range of business models and interests, and the role of a further group – insurers – with their own interests complicates things further
(c) the current compulsory setting for both superannuation, and the default setting for insurance in superannuation, means that the market is not one with strong demand-side competition
(d) there has been, to date, an absence of properly resourced and independent consumer organisations in the superannuation sector to help ensure accountability and appropriate standards, which has been a feature of code development in other sectors.”
ASIC suggested that given the fragmented nature of the superannuation entities and industry representative associations, it was likely that full coverage would only be achieved if code membership was mandatory.
