ASIC: Super funds charged higher premiums through incorrect "smoker" classification

Finance Journalist · 7 August 2020
Seven superannuation funds have been found to have charged higher life insurance premiums by wrongly classifying new members as smokers by default, according to the Australian Securities and Investments Commission (ASIC).
smoking premiums insurance
Did your super fund charge you more in life insurance premiums by marking you incorrectly as a smoker? Source: mantisdesign (Shutterstock)

Between 2017 to 2020, ASIC found that AMP, Colonial First State, Equity Trustees, IOOF (including OnePath), Intrust, Netwealth and Suncorp had, either at the time or previously, assigned ‘smoker’ status to some members unless they took active steps to confirm they were not a smoker.

ASIC has confirmed that all seven super funds have now stopped charging these higher smoker rates for life insurance premiums by default and have moved, or are in the process of moving, existing members who were wrongly classified onto non-smoker or blended rates.

Colonial First State, Equity Trustees, Intrust and Netwealth have refunded or agreed to refund members in part or full for the extra premiums paid because of this incorrect classification. When planned remediation is complete, more than 5,000 members will have received more than $3.6 million in compensation.

No compensation has been offered for approximately 146,000 IOOF superannuation fund members. AMP has also not offered compensation, while Suncorp had not yet finalised its decision at the time of writing.

ASIC Commissioner Danielle Press said that given insurance premiums for smokers are typically higher than for non-smokers, and that there is a low prevalence of smoking in Australian adults, this conduct was going against the community standards and expectations set for super trustees and their responsibility to meet the needs of their members.

“Many Australians may not realise that default classifications can impact the price of their cover and therefore reduce their retirement benefits,” Ms Press said.

“In light of the low smoking rate, merely providing disclosure and putting the onus on members to act is not enough to support good member outcomes.”

According to Canstar research, smokers do tend to pay substantially more for life insurance than non-smokers. For example, as shown in the table below, a male smoker in his 30s pays $84.30 a month on average for direct life insurance (based on $500,000 of cover). In comparison, a non-smoking male in his 30s pays $46.35 a month on average – 45% less.

For women of the same age group, the research also showed average premiums for non-smokers were around $35.49 a month, which is almost 40% cheaper than for smokers.

Average Monthly Direct Life Insurance Premiums
Female Male
Age Non-smoker Smoker Non-smoker Smoker
20s $32.71 $52.39 $48.53 $77.69
30s $35.49 $59.09 $46.35 $84.30
40s $64.22 $118.08 $79.92 $163.54
Early 50s $123.10 $224.40 $164.84 $330.82
Late 50s $204.31 $355.57 $302.45 $579.45
Source: Table prepared 27/05/2020. Data from the Canstar 2020 Direct Life Insurance Star Ratings (May 2020). Monthly premiums based on $500,000 of cover.

Ms Press said that for many Australians, insurance in superannuation offers quality coverage at a competitive price, so choosing appropriate default settings for insurance coverage is an important part of a trustee’s responsibilities in relation to group insurance.

“I strongly encourage trustees to take into account the composition and needs of their membership and check whether their default settings for insurance coverage are reasonable,” she said.

ASIC has advised super members who believe they may have been inappropriately classified as ‘smokers’ to approach their fund in the first instance and then to contact the Australian Financial Complaints Authority (AFCA) for free dispute resolution if they had complaints.

You can have a look at your most recent superannuation statement, log in to your account online or contact your super fund directly to find out whether you have been classified as a smoker.

If it looks like you may be paying too much for life insurance through your super, or you think you’re not getting enough coverage for your premiums, it may be time to review your policy options or consider whether direct life insurance may be right for you.

If you have found your superannuation is no longer providing you with the value you are after, you may also like to research your super fund options, taking into consideration investment performance, fees, insurance offerings, and other services on offer.


This article was reviewed by our Sub-Editor Jacqueline Belesky and Senior Finance Journalist Shay Waraker before it was published as part of our fact-checking process.


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