One of Australia's largest superannuation fund trustees has been ordered by the Federal Court to pay a penalty of $23.5 million for unreasonable delays experienced by thousands of members and claimants arising from serious failures to handle insurance claims in a timely manner.
The penalty has been imposed against United Super Pty Ltd, the trustee of the Construction and Building Unions Superannuation Fund (Cbus), following admissions by Cbus that serious failures caused delays in processing death benefits and total and permanent disability (TPD) insurance claims and impacted more than 7,000 Australians in distressing situations.
The penalty exceeds the $18.5m in revenue United Super declared in the 2024 financial year.
The penalties come on top of Cbus's own remediation program to pay approximately $32 million in compensation to the estimated 7,402 affected claimants and members for lost earnings and wrongfully charged fees.
ASIC Deputy Chair Sarah Court said Cbus's failures needlessly exacerbated the distress of people who were already in upsetting situations.
"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," said Ms Court.
"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."
"Not only was Cbus aware of increased insurance claim volumes, but it was also put on notice by its own customers who were complaining about the long delays they were enduring."
"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."
"ASIC has increased its scrutiny of claims handling and member services failures, which are both ASIC enforcement priorities, The sector should be on notice that ASIC is sharpening its focus," the Deputy Chair said.
In delivering his judgment, Justice O'Callaghan noted that, "Delays in the payment of benefits under insurance products can have serious and unacceptable consequences for affected members and claimants."
His Honour noted one case in which the widow of a Cbus member called into ABC radio in June 2023 to highlight a 15-month delay processing her late husband's death benefit claim. After she complained to the media about ongoing poor service, including a lack of communication and extensive periods on hold, Cbus commenced an investigation that led to the breach report to ASIC.
His Honour said, "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. As one of Australia's largest superannuation funds, it ought to have had more robust processes and systems in place to ensure compliance with key legislative obligations, and to prevent, promptly identify, and correct repeated individual and collective human errors resulting in failures to process claims within a reasonable timeframe."
Between October 2022 and November 2024, Cbus outsourced its claims processing to Australian Administration Service Pty Limited (AAS).
However, His Honour further observed, "United Super was ultimately responsible for the outsourcing of material business activity and, from at least November 2022, various United Super executive and board committees were aware that AAS had not met its agreed service levels in relation to the processing of claims."
The Court found that between 27 March 2023 and 1 May 2023, as a percentage of all open claims, between 48% and 56% of all death claims (numbering between 438 and 479 claims) had been open for more than 365 days, and between 38% and 43% of all TPD claims (numbering between 391 and 409 claims) had been open for more than 365 days.
The Court declared that Cbus contravened the Corporations Act by failing to do all things necessary to ensure Death, terminal illness and TPD claims (Claims) were handled efficiently, honestly and fairly by failing to:
- take all reasonable steps to ensure Claims were being processed in a reasonable period of time
- ensure that it held accurate and complete data necessary to determine the volume and age of all Claims
- ensure the relevant committees had sufficient oversight over issues with processing Claims, and
- adequately monitor and manage the administrator's performance under the Administration Agreement.
The Court also found Cbus had contravened the Corporations Act on two further occasions by failing to report the matters to ASIC within the required time frame. Reports were required to be made to ASIC on 3 March 2023 and 20 July 2023, but nothing was reported to ASIC until 5 August 2023. The report was made after criticism had occurred on an ABC Melbourne Radio program.
In addition, Cbus was also ordered to pay half a million dollars towards ASIC's legal costs and undertake a compliance program requiring it to obtain expert reports on whether it now has appropriate systems and processes in place.
