Banks + Insurance + Super = Conflicts
Many people obtain insurance as part of their superannuation. These policies are actually taken out by the Trustee of the Super Fund on the member’s behalf.
The Trustee of a Super Fund must act in the best interests of its members and where a conflict of interest arises, the Trustee must give priority to the interests of the members. In entering into these insurance arrangements, the Trustee is also required to exercise a high level of care, skill and diligence.
The four major banks – CBA (by way of Colonial First State), Westpac (by way of BT), NAB (by way of MLC) and the ANZ (by way of OnePath) each operate very substantial superannuation funds. Each bank controlled superannuation fund also offers insurance to its members. What is interesting is who this insurance is provided by:
- CBA (Colonial First State) – the insurer is Comminsure which is part of the CBA Group;
- Westpac (BT) – the insurer is Westpac Life which is obviously part of the Westpac Group;
- NAB (MLC) – the insurer is MLC Insurance which is part of the NAB Group; and
- ANZ (OnePath) – the insurer is OnePath which is part of the ANZ Group.
As a starting point, it is interesting that despite a Trustee have an overriding obligation to put its members’ interests first, each Bank Super Fund Trustee has happened to choose a company within the same group of companies to provide the insurance.
The obvious conflict of interest that exists with respect to the insurance arrangements that apply to Bank Super Funds raises at least 2 important issues.
The first is how the Trustee meets the obligations set out above when it is obtaining insurance for the Fund’s members. A good example of issues that can arise are the definitions that apply to TPD insurance. A restrictive definition as to when a person is totally and permanently disabled will mean that many members will not be paid out when they suffer a serious illness and cannot work. Insurance is not all the same. Insurers offer different definitions in their TPD policies which have important real world consequences (in some cases disastrous) for members of super funds. Is the Trustee of a Bank Super Fund actually (as it is required to do) going to aggressively go out into the market and get the best insurance coverage for the Fund’s members or will the Trustee, instead, choose an insurer that is part of the same group of companies. One effect of this arrangement being that the Trustee is, in effect, negotiating with itself about the level of coverage that will be provided to the Fund’s members.
The second is to do with claims handling. Many issues can arise about whether an insurance company fairly handles a claim (for example by taking too long to make a decision or asking for information to be provided that is not reasonably necessary to make a decision about the claim). If I think that I’m being unfairly treated by the insurer I should be able to raise this issue with my Trustee who will then put pressure on the insurer to resolve the claim fairly. Again, as a practical matter, how likely is it that my Trustee will aggressively pursue an issue concerning an insurer that is part of the same group of companies. More generally, how likely is it that a Bank Super Fund Trustee would ever move its members to another insurance company (this being something that the Trustee should do if the insurance company is providing a poor level of service to its members and also being the most important thing that a poor performing insurer would be concerned about).