Does the lack of compulsion around the insurance inside superannuation Code of Conduct mean it lacks teeth? Most participants in the Super Review roundtable believe it does.
The roundtable panelists:
Mike Taylor (MT) – Managing Editor, Super Review
Bill Butler (BB) - SuperRatings
Stephen Pratt (SP) – GM, Operations, Prime Super
Anthony Clough (AC) – Head of Corporate Trusts, AIA Australia
Paul Watson (PW) – Principal, Watson Berrill Lawyers
Adam Gee (AG) – Superannuation partner, KPMG
Jenni Baxter (JB) – Rice Warner
Franco Crapis (FC) – Head of Life Product Pricing & Strategy, CommInsure
MT: Should the Code of Conduct applying to insurance inside superannuation been made compulsory? Personally, I think it lacks gravitas without compulsion.
BB: What do you mean by compulsion?
MT: That as a fund you need to sign up to the -
BB: What happens if you don’t?
MT: That there should be some sort of sanction, but I don’t know how you sanction anybody unless you have got the power of a regulator.
PW So, you can force a trustee to follow the code even if it conflicts with their duties under [SIS Act], or the general trustee’s duties.
MT: Well, you raise an important issue in saying that, but that is part of the debate. Should it have been compulsory, and so Paul, as a lawyer, should it have been?
PW: I think it should be. I think that the code should be compulsory, and I had heard that there were some concerns in industry that signing up to the code could – there might be difficulties in having people able to be compelled to do things, which is contradictory to their obligations under Section 58 of the SIS Act.
But, I mean, the government can simply amend the SIS Act, because they will do that in respect – currently, it has the SCT [Superannuation Complaints Tribunal] in there and is able to direct a trustee. Presumably, that will change to the Australian Financial Complaints Authority.
The other thing that the code needs is a code administrator. The Life Code has a Life Code compliance committee, and there has to be oversight of the code. I think the code has to be compulsory. It also needs oversight, and I think it has to have powers of sanction, even if it is simply having an independent body naming and shaming. That will improve behaviour. Super funds won’t want to be named and shamed. But, really, without that – it is not much, but it seems a pretty simple amendment to just simply amend Section 58 so that it includes the code administrator as someone who is able to do it.
SP: It is a bit different to the Life Code, though. The Life Code applies to the life insurers, and that can be administered through their industry body, but this code applies to trustees not the insurers.
BB: The Life Code applies to life insurance, not super funds. The Insurance Code applies to super fund trustees rather than the insurers, so there isn’t really an established way of mandating a compulsory code.
MT: Adam, do you see it as a problem? You are obviously seeing it from the point of view of a consultant, but you also see where the minister is coming from on it. Do you see the lack of compulsion as being a real problem for the industry or something that can be overcome?
AC: In hindsight, I think the ISWG will probably look back and will say that we should have mandated it. I think that my view is that if we had done that, the minister may have given us more time to implement the code.
The challenge, I think, though, with mandating it is, somewhat to Bill’s point, is that some funds will really struggle to comply with certain aspects of the code around that one per cent premium cap, and if we mandate that funds have to comply then the challenge will be for some of those in higher risk membership classes, categories, how are they going to get reasonable levels of cover? But, in hindsight, I think it would have been better if we had mandated the code somehow, if we could find a legislative instrument to do it.
SP: I suppose, our view was that we weren’t keen to comply with everything that was in the code. There are sections that we thought weren’t in our member’s best interests, and we were contemplating how we would deal with that. I suppose if you want a code to have some sort of impact, I suspect it really does need to be compulsory, and I don’t see how you can avoid that. I mean, to send it out there and say that it is voluntary, well, it doesn’t really deliver anything to the industry and all it has really done for us is allow the government to tell us what we are going to do. So, I think probably we should have made it – we probably should have said that it would need to be compulsory, and we should have just - as a fund, then, it would have been up to us to manage how we best manage that as far as our members are concerned. Hindsight.
MT: Frank, have you got any thoughts on it, in hindsight?
FC: Well, it is different for us as an insurer. But, yes, directionally, we support Insurance in Super Code.