Super fund hit with penalty over claim delays

The industry super fund has been ordered to pay $23.5 million after systemic failures caused extensive delays for thousands of insurance claimants.

The Construction and Building Unions Superannuation Fund (Cbus) has been ordered by the Federal Court to pay a $23.5 million penalty after thousands of members and claimants experienced unreasonable delays arising from serious failures in handling insurance claims, the Australian Securities & Investments Commission (ASIC) has announced.

According to the regulator, the penalty against United Super Pty Ltd, the trustee of Cbus, followed admissions that significant failures led to long delays in processing death benefits and total and permanent disability (TPD) claims, affecting more than 7,000 Australians.

The amount exceeds the $18.5 million in revenue the trustee declared for the 2024 financial year.

The court-ordered penalty comes in addition to Cbus’s $32 million remediation program to compensate an estimated 7,402 affected claimants and members for lost earnings and wrongfully charged fees.

ASIC deputy chair Sarah Court said Cbus’s failures unnecessarily compounded the distress of people already facing difficult circumstances.

“Thousands of Australians suffered real and avoidable harm because of long delays and systemic failures in the way Cbus handled important and sensitive insurance claims,” Court said.

“When people were grieving the loss of a loved one or grappling with a life-altering injury, Cbus should have ensured timely and accurate decisions were made on their insurance claims,” she said.

Court added that the trustee was aware of rising claim volumes and had been alerted by customers’ complaints.

“This outcome underscores a message to the whole industry to get it right, especially when your members need it most. You cannot outsource your obligations to your members.”

She further stated that ASIC has increased scrutiny of claims handling and member service failures, noting these areas are enforcement priorities and that “the sector should be on notice that ASIC is sharpening its focus”.

In his judgment, Justice O'Callaghan said, “Delays in the payment of benefits under insurance products can have serious and unacceptable consequences for affected members and claimants.”

According to ASIC, His Honour referenced a case in which a widow appeared on ABC radio in June 2023 to highlight a 15-month delay in processing her late husband's death benefit.

Her public complaint about poor service, including a lack of communication and extended periods on hold, prompted Cbus to investigate and ultimately led to a breach report to ASIC.

Justice O’Callaghan also noted that “as at 30 June 2024, the Fund was ranked the ninth largest superannuation fund in Australia, and in the 2024 financial year the Fund had over $95 billion in total assets”.

He said such a large fund “ought to have had more robust processes and systems in place” to meet legislative obligations and avoid repeated errors that caused unreasonable delays.

Between October 2022 and November 2024, Cbus outsourced its claims processing to Australian Administration Service Pty Limited (AAS).

However, His Honour said United Super “was ultimately responsible for the outsourcing of material business activity” and that from at least November 2022, its executive and board committees were aware AAS was not meeting agreed service levels.

The Court found that between 27 March and 1 May 2023, between 48 per cent and 56 per cent of all open death claims — numbering 438 to 479 claims — had been open for more than 365 days. For TPD claims, between 38 per cent and 43 per cent — numbering 391 to 409 claims — had also been open for more than a year.

The Court declared Cbus breached the Corporations Act by failing to ensure death, terminal illness and TPD claims were handled efficiently, honestly and fairly.

Alleged failures included not taking reasonable steps to ensure claims were processed in a reasonable period, failing to maintain accurate data, insufficient oversight by relevant committees, and inadequate monitoring of the administrator under the outsourcing arrangement.

The Court also found Cbus failed to report issues to ASIC within required timeframes. Reports due on 3 March and 20 July 2023 were not lodged until 5 August 2023, following criticism aired on ABC Melbourne Radio.

Cbus has also been ordered to pay $500,000 towards ASIC’s legal costs and to complete a compliance program requiring expert assessments of whether its systems and processes are now adequate.

According to the fund, it has established reserves to pay the penalty imposed by the Court, and that a "provision for an expected penalty was made" in the fund's financial accounts. 

Cbus confirmed in a statement following the decision that member admin fees have not been increased to cover the penalty. 

"We want to again apologise to our members, families and claimants without reservation and promise to do better," the statement read. 

"Cbus has now paid compensation to almost all affected members, their families and claimants." 

Dispute with MUFG Retirement Solutions settled 

The industry fund has also confirmed that it has settled a dispute with its customer service administrator, MUFG Retirement Solutions, pretaining to issues associated with delays in processing death benefit and insurance claims. 

According to Cbus, this has "resulted in an apology from MUFG Retirement Solutions to Cbus members, their families and claimants, and a financial settlement with the fund". 

"Over the past year, Cbus and MUFG Retirement Solutions have implemented reforms to streamline claims handling and payment services.

"Cbus has doubled the size of its claims team and formed specialist units to manage claims more efficiently and empathetically," the fund's statement further read. 

Earlier this year, the fund revealed reforms to streamline death benefit payments, cut processing times and reduce complextity. 

These reforms are expected to remove "4 to 6 weeks" from processing times for the average death claim, according to Cbus. 

"A new simplified insurance payment process for death benefit payments will also commence from next Monday (1 December 2025).

"Cbus has cooperated with ASIC throughout the legal process and taken proactive steps to resolve the case quickly as protracted litigation would not be in members’ best financial interest. The conclusion of the proceeding this year reflects this."