Full video transcript [05:33 mins]

Recent media reports have, once again, focused a spotlight on Australia’s financial services sector, and in particular, superannuation governance. 

Today I want to speak about what boards of superannuation trustees can/should be doing (or ensuring their management teams are doing) to provide robust oversight of claims management, fulfill member promises, and effectively manage outsourcing arrangements. This conversation comes at a critical juncture, with both the Financial Accountability Regime (FAR) and CPS 230 set to take effect for the insurance and superannuation sectors next year.

Let’s start with the heart of the issue; claims management.

For members, superannuation is more than just an investment. The death and TPD insurances provided often as part of the superannuation product can be the only safety net for a person or their family during life’s most vulnerable moments. As recent examples like CBUS and Australian Ethical super highlight, the Australian superannuation sector operates on trust and without a standardized code of conduct to ensure claims are processed in a timely and transparent manner.

Compare this to other sectors, such as general insurance, where mandated claim processing times set clear expectations. Superannuation boards need to ask themselves and their management teams a vital question: “Are we doing enough to ensure claims are handled when members need them most?”

This is not just about regulatory compliance; it’s about trust – trust that members’ promises will be fulfilled when they rely on their fund – and trust that boards are fulfilling their key governance duties. If they are not already (which they should be). Boards must delve deep into their claims management processes and ensure they are reviewing relevant and informative metrics like processing times, member satisfaction, and complaint resolution rates and times.

This is even more so if a fund’s claims management processes are outsourced.  As observed in the CBUS example, pointing the finger at an outsourced provider does nothing to alleviate a board of its duties or to quell member anger.  And with CPS 230 soon to heighten the scrutiny on how boards oversee service providers, particularly those managing critical functions like claims administration, boards have been put on notice that their governance performance will be in the spotlight – both with members and regulators.

The outsourcing landscape often involves intricate relationships with third parties, and yet boards remain ultimately accountable for their performance. Under the new regime, boards will need to demonstrate robust frameworks to assess, monitor, and enforce outsourcing agreements.  ASIC has also recently indicated that misconduct exploiting superannuation savings is one of its key enforcement priorities for 2025 and put the industry on notice in regard to unacceptable delays in death and disability claims. Its further report, due to be released in 2025, will likely indicate whether there may be further enforcement action to come.

In my view, boards need to ask and understand whether their current outsourcing governance practices are fit for purpose in this new regulatory environment. Whilst looking at significant or material contracts have always been on the radar, I think boards need to consider whether service providers delivering to the standard members and society expect? And if not, how (and how quickly) can the fund intervene?

Finally, I want to stress the importance of member-centric governance. Superannuation isn’t just about meeting legal obligations – it’s about fulfilling a social promise. The introduction of the FAR and CPS230 underscore this, placing clear accountability on directors and executives to ensure that promises to members are honored effectively and efficiently.

In this current climate, boards should prioritize three key actions: 

1. Revisit claims management processes: ensuring they are effective, efficient and align with member and societal expectations, not just regulatory requirements. 
2. Strengthen oversight of outsourcing arrangements: ensuring service providers are held to the highest standards and that a board has clear and timely oversight of their performance before problems arise. 
3. Embed a culture of accountability and transparency: ensuring that governance practices reflect the central promise of superannuation: to support members when they need it most.

The recent media attention and coming regulatory changes are a wake-up call. As custodians of members’ trust, boards must go beyond ticking boxes and instead lead with purpose, integrity, and a relentless focus on fulfilling their governance duties and delivering for members.