Insurance experts have warned superannuation fund trustees that the specific wording and definitions in their liability insurance policies may leave them stranded with inadequate levels of coverage in the case of a mass payout of members.
The warning came at the Association of Super Funds of Australia conference, where professional indemnity companies and lawyers raised concerns that specific wording and definitions in trustee policies could classify one issue affecting the majority of its members as a single event, severely limiting the amount of available insurance.
Trustees could have as little as $5 million insurance coverage for a single defined event, but then find out that the advice provided to a large number of members fell under that one single event, leaving them with inadequate insurance to pay out to members, said Minter Elison partner Pam Madafiglio.
If multiple complaints arise from a single event, there would only be one limit to pay all complainants, even if that limit was small, Madafiglio said.
Trustees were also warned to continually review their ongoing insurance arrangements if they wanted to remain compliant with Australian Securities and Investments Commission (ASIC) regulations.
"ASIC doesn't approve your compensation arrangements, but you can bet your bottom dollar that when it comes to look at your compliance review, one of the things it will be looking at is your insurance arrangement, so it will look at evidence that not only was it adequate to start with, but that you have been assessing it on a regular basis," Madafiglio said.
Professional indemnity product manager at Vero, Cathie Thompson, warned that the trustees need to make their liability insurance policies more plainly understood.
A large amount of complaints from consumers were about miscommunication by a superannuation fund which could amount to misleading or deceptive conduct.
"What is common parlance to you in the industry is not common parlance to your members," Thompson said.
"What you think is providing plain English information to your members, when they read the words they don't necessarily understand what you're talking about," she said.
