ASIC delivers scathing review into ‘insensitive’ super funds on death benefit insurance claims

Australia’s corporate watchdog has called on superannuation funds to overhaul the way they deal with death benefit insurance claims, noting excessive delays, poor customer service and ineffective claims handling are leaving Australians worse off at some of the most vulnerable times of their lives.

The Australian Securities and Investment Commission (ASIC) has called on industry leaders to “take ownership of the problems and flex their muscle to fix the failings” after launching detailed investigations into 10 super funds, including interviews with their CEOs, over a two-year period to March 31, 2024.

ASIC’s review excluded two industry giants — Australian Super and Cbus — due to legal action the watchdog was taking against these funds over their handling of death benefit and disability claims.

But the 10 funds it did include in the review featured some of the nation’s biggest and were collectively responsible for 38 per cent of all member benefits in superannuation funds regulated by the Australian Prudential Regulation Authority (APRA).

ASIC chairman Joe Longo said while some funds performed better than others, “tellingly, none of the reviewed trustees monitored or reported on their end-to-end claims handling times or performance”.

“At the heart of this issue is leadership that doesn’t have a grip on the fund’s data, systems and processes — and ultimately, it is the customers who suffer for it,” Mr Longo said.

“This kind of disconnect is unacceptable in any area of corporate Australia, but in the superannuation sector it is particularly serious, because super affects everyone from the boardroom to the living room.”

Misplaced paperwork and compensation for delays ‘insulting’

While Cathy Clark is not named in the ASIC report, she is one of the people saying Australian Super dragged its feet in paying out a death benefits claim owed to her and other family members.

Australian Super has been accused by the watchdog of failing to process thousands of death benefit claims “efficiently, honestly and fairly” between July 2019 and October 2024.

And Cbus is being sued for delays in processing more than 10,000 death and disability payments.

Ms Clark’s brother, Craig Clark, was an Australian Super member who was diagnosed with cancer in August 2022 and died from it in January 2023.

Ms Clark says she approached her solicitor about the case in February 2023.

She says the fund took months to receive her brother’s death benefit payment, worth about $11,000.

She says the beneficiaries — including herself — finally got paid in March 2024.

Ms Clark says she faced repeated paperwork requests and was told by Australian Super they had misplaced documents and she needed to resend them.

“I got to the point where I was ringing … and just saying, ‘what’s going on, why are you taking so long?'” she said.

Ms Clark received a letter for compensation from Australian Super in early March for $28.99, to be divided between three people, 12 months after the death benefit payment.

“They sent me a letter — Australian Super — saying ‘We’re sorry we took so long to pay you, acknowledging the length and that it was unreasonable,” she said.

“I felt insulted. I would have preferred just an apology. It was — it’s not even worth, by the time I get it and then divide it by three.”

Ms Clark says she understands that super funds have an administrative process and certain documents need to be provided.

Under the law, superannuation funds are required to pay out the entire benefit including any remediation and inform the members about it.

An Australian Super spokesman told ABC News it was not able to comment on individual cases, but the fund was in the process of compensating people whose historical death benefit claims lodged between May 2020 and October 2024 “took longer than the fund’s internal target to finalise”.

It added that paying out members’ retirement savings and insurance after they died was “one of the most important services that we provide”.

It said these claims were now being dealt with in-house, with “75 dedicated case managers handling individual death claims from start to finish” and that since being launched in April 2024, “we have seen a significant reduction in claim processing times and are now achieving our target”.

ASIC review finds evidence of ‘deep grief, vulnerability, genuine suffering’

ASIC’s report noted that many of the complaints the watchdog reviewed were “distressing and evidenced deep grief, vulnerability, frustration and genuine suffering”.

The review said that overall, “claims processes and procedures were often unclear and inconsistent” and that “communication and engagement was often ineffective and insensitive”.

ASIC’s review found big variations in claims handling times, with about 48 per cent of death benefit claims closing in 90 days but the slowest trustee closing only 8 per cent of claims in this time.

Of the claim files ASIC reviewed, 78 per cent had delays caused by processing issues within the trustee’s control.

And 27 per cent involved poor customer service including phone calls not being returned and queries being dismissed.

It also found 17 per cent of claim files reviewed had claimants who were experiencing vulnerability and about 30 per cent of those were handled poorly.

ASIC commissioner Simone Constant said grieving Australians should not have to suffer further stress because of the failure of superannuation trustees to approach claims in a “timely, clear, and respectful manner”.

In one case, a trustee took over 500 days to pay a death benefit of around $100,000 to a First Nations woman who was grieving the loss of her husband.

The trustee failed to respond to her concerns about financial hardship and did not support her when she struggled to understand and navigate the claims process.

“The money from a death benefit can make a huge difference and each day a trustee delays that payment causes real harm to families — trustees need to do better,” Ms Constant said.

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‘Harm’ and ‘stress’ from delayed death benefit payments

ASIC’s report noted that when processing of a death benefit was delayed, “not only does the beneficiary suffer the stress of engaging with a complicated process while grieving, they are also denied access to money they are entitled to”.

“Claimants suffering financial hardship may not be able to afford the funeral, burial or cremation arrangements that are personally or culturally important for their grieving, leading to ongoing distress,” the review said.

ASIC said if a claimant relied on the member for financial support, “they may not be able to afford rent or mortgage payments, risking eviction or foreclosure and the associated fees and penalties”.

ASIC also noted that many of the reviewed trustees had a practice of moving the member’s account balance and any insurance proceeds (when paid by the insurer) into the fund’s cash investment option, which could erode their retirement savings.

“While this reduces the risk of investment losses, it also reduces returns — delays exacerbate lost investment earnings,” the report said.

ASIC did not collect data about fees charged as part of its review but noted that “it is common for trustees to continue to charge administration fees and investment fees”.

Super funds vow to improve claims handling post ASIC review

ASIC’s review comes after an uptick in complaints to the Australian Financial Complaints Authority (AFCA), which in 2023-24 alone, received 7,325 superannuation complaints — a 5 per cent increase from the previous year.

Despite this rise, superannuation complaints have consistently accounted for about 7 per cent of AFCA’s total complaints.

Ms Constant said ASIC would review the progress all trustees had made on improving their death benefit claims handling processes to ensure that they were appropriately prioritising the needs of members and their beneficiaries.

ASIC noted that “to prioritise taking action against misconduct, any trustee that was being considered for enforcement investigation was excluded from the final phase of the review”.

It said the 10 trustees they did focus on had since undertaken their own reviews into the reasons for complaints handling delays.

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