A former insider calls it the “side hustle” of Australia’s multitrillion-dollar superannuation industry – where the handling of thousands of death and disability claims from injured workers and grieving families falls to underpaid, overworked contractors in call centres.
But the role super funds play as the country’s biggest gatekeepers for life insurance payouts is now under scrutiny amid claims of endemic problems with their outsourcing models.
A scandal embroiling Cbus, which is being sued by the corporate watchdog over delays in thousands of death and disability claims by injured workers and grieving families, has sparked a broader probe of the super sector and calls for funds to face binding performance measures like the insurers they rely on.
ASIC has warned its federal court lawsuit against Cbus is likely a window into a problem spread across super funds, which are the source of life insurance coverage for about seven in 10 Australians who have it.
At the end of 2022, Cbus had failed to settle more than half its death or TPD claims within a year, according to ASIC, which said this compounded the distress and financial losses of thousands of vulnerable people.
Cbus chief executive Kristian Fok has apologised for the fund’s failure to look after customers but insisted its management and board – which is chaired by former federal treasurer Wayne Swan – “did take action on delays”.
The fund, which has almost one million members and is the fourth largest in Australia by value, has come under fire from the federal Opposition over its links to the scandal-plagued CFMEU.
But its other stakeholders include the construction bosses’ group Master Builders and the Australian Council of Trade Unions.
And one of the alleged ‘root causes’ of its failures lay in a business relationship with an outside firm used by other big super funds to help process death and TPD claims.
Australian Administration Services (AAS), a subsidiary of Japan’s Mitsubishi UFJ Trust and Banking Corporation, services more than 40 per cent of Australian superannuation accounts.
AAS has its roots in an outfit called Superpartners, which was once jointly owned by big super funds including Cbus, AustralianSuper, Hostplus and HESTA until it was sold off in 2014.
According to ASIC, Cbus last year partly attributed a growing backlog and complaints about its claims handling to “human resource planning issues and/or failures (at AAS)”.
But ASIC alleges Cbus failed its legal obligations to members to address the “poor performance” of AAS and fix the delays, which by its own admission cost claimants $20 million.
It alleges Cbus was aware of a “significant turnover in staff” at AAS and suggestions that some were “not adequately trained”.
It is understood AAS handles insurance claims with a team of 300 people, about 60 of them dealing directly with people making claims.
‘Not a normal administration job’
One former insurance claims manager at the outfit told the ABC that staff turnover had been a longstanding issue because the jobs were stressful and the pay relatively low.
“People aren’t happy with what they’re being offered for what they’ve actually got to do,” they said.
“Most of the time, you’re just getting yelled at by people because they’re in a vulnerable situation.
“And we were the front line so all the staff would just cop all the crap from the super members that were claiming.
“Like people ring us and say, ‘Well, I’m about to commit suicide’, so we’d have to ring the police and say, ‘Can you go do a welfare check?’ That’s not a normal administration job.”
The former claims manager, who asked to remain anonymous because they weren’t authorised to speak publicly, said insurance claims handling seemed to be a lesser priority to super funds “because it’s money going out” as opposed to investments generating member returns.
“I will say this, that the insurance section is the kind of side hustle of the whole super framework,” they said.
“The full concentration really goes into the superannuation side, not so much the insurance side.”
The former manager said in their experience, it was the insurer who was “really the main engine of the whole process because they’re the ones who have to assess all the information and make the decision”.
“All the [administrator] is doing is collecting the information to lodge a claim and sending it to the insurer, and the insurer does everything else.”
A ‘super fund problem, not an insurance problem’
But the year-long blowouts in claims through Cbus are not mirrored in the performance of its insurer, according to ASIC data.
TAL Life Limited, a subsidiary of Japan’s Dai-Ichi Life Group, took 4.2 months on average to settle TPD claims, and just one month for death claims.
Lawyer Paul Watson, whose firm regularly acts for claimants in disputes, said those numbers showed “the problems that we’re seeing now are a super fund problem, not an insurance problem”.
Mr Watson said the Cbus case “puts all of the super funds on notice that they have to provide proper oversight to their fund administrators to ensure that the members are getting what they need when they need it”.
“I would expect it to be a wider problem than Cbus,” he said.
“Obviously, ASIC’s case will need to run its course but it does seem that there has been a deficiency in the oversight here of the fund administrator.
“I think you would be naive to think that an administrator who has performed poorly for Cbus has performed otherwise brilliantly for everyone else.”
In a statement, AAS’s parent company said it was “aware of ASIC’s proceedings against Cbus Super”.
“As one of a number of stakeholders involved in the insurance and claims process, we will support Cbus as required to respond to the proceedings,” it said.
“We will not provide public comments on the matter at this stage out of respect for the legal process.”
Binding rules ‘badly needed’
Mr Watson said insurers had generally improved claims handling since 2017 and it was “no coincidence” this followed the introduction of a mandatory life insurance code of practice.
“There are strict processes that have to be met and external oversight – that’s external oversight from a body made up of consumer and industry people who can objectively review the conduct of an insurer to make sure that what they’re doing is okay,” he said.
“I think that the performance of the life insurance industry improving almost immediately upon the introduction of the life code tells you everything that you need to know.”
But there is no such scrutiny with super funds, which walked away from a voluntary code of practice in 2021.
“To me, this Cbus case should tell everybody that the superannuation industry missed its chance,” Mr Watson said.
“I think that there is a clear absence of a code of practice in superannuation, and it is badly needed.”
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