A trustee tasked with managing total and permanent disability (TPD) insurance claims for Cbus members is being sued by the corporate regulator for unreasonable delays in resolving claims, Federal Court filings reveal.

ASIC is suing the super fund’s trustee, United Super, for its alleged “systemic” failures in handling death benefit and TPD claims between September 2022 to November 2024.

The trustee, the corporate regulator said, “failed to act efficiently, honestly and fairly in the handling of claims for death benefits and TPD insurance”.

By end of 2022, ASIC found that a majority of claims processed remained unresolved after more than a year. Just 11 per cent of claims were fewer than 90 days old.

These delays affected more than 10,000 members, including 7,700 TPD claimants and 3,600 death benefit claimants. Of these, more than half (56 per cent for TPD and 53 per cent for death benefit claims) failed to be resolved within 365 days.

As a result, claimants suffered an estimated total of $20 million in losses from the delays, ASIC alleges.

While the filings note that the Cbus trustee outsourced TPD and death benefit claims handling to a number of third-party partners for processing, this, the corporate watchdog argued, “does not relieve them of accountability for unreasonable claims handling delays”.

“Trustees cannot outsource accountability when it comes to claims handling. It is the trustee’s responsibility to ensure there is adequate oversight of their systems and to prioritise the resources necessary to deliver the services they have promised to their members,” said ASIC deputy chair Sarah Court in a statement.

Cbus is also accountable, ASIC said, after it found to have “failed to take prompt and effective action to prevent and/or reduce such losses” and failed to lodge a reportable situation report with ASIC in the required 30-day timeframe.

Further, ASIC alleges that the ‘reportable situation’ lodged by Cbus to the regulator contained false or misleading statements, including misrepresentations on when the contraventions occurred and when they were discovered.

Outsourcing does not absolve

United Super outsourced its claims handling to managed services provider MUFG Pension & Market Services’ local subsidiary Australian Administration Services (AAS). Cbus, AAS and Pacific Custodians confirmed an administrative agreement in late December 2020 to process the super fund’s TPD claims.

Despite concerns raised by Cbus as early as late 2021 about the potentially “systemic” issues that AAC faced in processing these claims (and even reports sourced from February 2020 suggesting its claims processing faced unexplained delays), these concerns were not sufficiently escalated until mid-2023. At this point, Cbus’s Risk Committee re-rated the concern from ‘medium’ to ‘high’.

An ‘Interim Risk Report’ reviewed by Cbus’s Risk Committee in late 2022 fund that the ‘root cause’ of missed performance standards was the result of an excess of claims being processed as well as human resource planning issues and/or failures at AAS.

“In its breach report lodged with ASIC on 5 August 2023, Cbus in effect acknowledged that the first instance of its failure to process death and TPD benefit claims efficiently, honestly and fairly occurred on 1 September 2022. That was almost 12 months before Cbus decided to re-rate the ‘Insurance Offering’ material risk as ‘high’,” the court filings state.”

ASIC chair Sarah Court expressed her disappointment with the delays, which she said cause “real harm to families who may be relying on the payments to meet critical expenses”.

“This adds to difficult personal circumstances, whether grieving for a loved one or dealing with severe injury or illness. The additional anxiety and pain these delays caused compounded the issues these members and their families faced.”

Court added: “We allege Cbus failed its members and claimants at their most vulnerable time, and we are taking this case to protect all those vulnerable Australians trying to access the financial support to which they are entitled.

“The systemic failure by superannuation trustees to deliver essential member services in a timely manner is a key priority for ASIC and we will continue to take action to hold trustees to account.”

ASIC, as part of its civil suit, contends multiple contraventions of the Corporations Act, including:

• ss 912A(1)(a) & (5A) by failing to act efficiently, honestly and fairly in the handling of its members’ claims for death benefit payments and TPD insurance payments;
• section 912DAA(1) and (7) for failing to lodge a reportable situation report within 30 days of becoming aware of a reportable situation; and
• Section 1308(5) for failing to take reasonable steps to ensure the breach report lodged on 5 August 2023 was not false or misleading in a material particular.

Cbus in a media statement apologised for the protracted delays, conceding it “added to the distress of members and their families”.

“We apologise to our affected members and their families without reservation and promise to do better.”

The super fund said it has implemented measures to reduce delays, adding that it is “committed to further improving management of insurance claims”.

The regulator’s civil action seeks penalties, declarations, adverse publicity orders and orders for compliance matters to be implemented.