Under the draft Life Insurance in Superannuation Code of Practice, life insurance premium caps will have a maximum limit of one per cent of estimated earnings and 0.5 per cent for members under 25, and cover cancellation would have to be straightforward.
The Insurance in Superannuation Working Group (ISWG)’s draft code was released today after 10 months of development.
On premium caps, the group said trustees could determine the level of earnings they used to carry out the assessment, based on the particular characteristics of their membership, their period of membership, and relevant segments therein.
ISWG’s consultation paper said this would help protect account balances from inappropriate erosion.
The code said it required trustees to make the cessation arrangements, or ‘opting out’ of automatic cover straightforward and transparent for members.
“Members must be able to cancel through a fund’s website, over the phone or via email. Instructions on how to cancel must be provided clearly in member communications,” the paper said.
“One of the code’s significant protections of member account balances is the requirement that trustees cease a member’s cover where no eligible contributions have been received for 13 months, unless the member advises that they want to retain the cover.”
ISWG said the 13-month period was measured from the end of the period covered by the most recent eligible contribution where this was known by the trustee, otherwise the measure was the date of the most recent eligible contribution. The intention was for the period of no contributions to not exceed 13 months wherever possible.
ISWG chair, Jim Minto, said: “Importantly, the draft code includes measures to address the impact of insurance on retirement incomes and, in particular, the impact on low income earners, young people, those with less secure employment and women”.
Other key elements of the code included benefit design, duplicate insurance cover, member communication initiatives, better claims handling initiatives, and better data standards and improved transparency arrangements.
Minto said feedback was welcome before the final version was to be published by the end of 2017, and that it was also intending to see the regulator’s authorisation of the code and to have enforceable arrangements to ensure compliance.
The code is intended to apply to all Australian Prudential Regulation Authority (APRA) regulated super funds that offer insurance from 1 July 2018, with a transition period of 12 months.
