The government is concerned whether the draft code of practice, released last week for consultation by the Insurance in Superannuation Working Group (ISWG), is a genuine attempt to address high life insurance premiums and the unnecessary erosion of savings, particularly for younger members of superannuation funds.
There are also concerns about the lack of standardised definitions for life insurance policies in the code.
The government believes if its concerns aren’t addressed by the final code, it will need to introduce new laws to protect savers from onerous fees, reported The Australian.
Financial Services Minister Kelly O’Dwyer told The Australian: “The government wants to make sure members who are receiving insurance through superannuation are getting value for money, and they’re not having their super balance eroded by excessively high fees because of the default settings.”
“Life insurance can absolutely benefit people if it is good insurance charged at the right premiums. There’s no question that can be a substantial benefit,” Ms O’Dwyer said. “But I want to make sure, at the end of the day, that fund member’s financial interests are properly protected.”
The Turnbull government has put life insurance fees on the agenda by including insurance cover in a Productivity Commission review of efficiency in the superannuation industry, which has galvanised parts of the sector to more closely examine its products and policies.
The working group has proposed a cap on insurance premiums of 1% of estimated earnings, and 0.5% for younger savers, and a cut-off period for life insurance cover where a fund member has made no contributions for a 13-month period. Customers will be contacted three times before cover is withdrawn.