Anyone who has been involved with the production of a superannuation fund's product disclosure statement (PDS) is likely to be aware the insurance section of this document is one of the most complex and challenging to produce.
Using simple language to accurately convey the numerous interwoven terms and conditions of a group insurance policy is far from straightforward. And the increasing pressure we are seeing in the market for more comprehensive coverage is doing nothing to reduce what some are quick to suggest is complexity for complexity's sake.
Incorporation by reference of a fund's group insurance policy or policies may, under the coming new era of consolidated PDSs, sound a simple solution to this, but is it?
Insurers have generally attempted to make their group insurance policies more customer friendly.
However, maintaining the critical linkages between the various clauses throughout the document is paramount, especially when each policy is tailored to the client.
The larger funds particularly are seeking more complex arrangements, requiring substantial tailoring of policies. Ensuring there is no ambiguity and there are no gaps relating to conditions, such as eligibility for cover, starting and stopping of cover and eligibility for a benefit payment, makes simplified wording of policy documents extremely challenging.
The new regulations for short and simplified PDSs come into effect on 22 June 2011 for new products and supplementary PDSs, and on 22 June 2012 for existing products.
These will inevitably put pressure on space, as funds work to squeeze everything into the stipulated 'magical' eight-page maximum. Summarising policy conditions and referring to the policy document are inevitable.
The challenge for trustees will be to provide members with sufficient accurate information, in the very limited space available, to understand what they are covered for and also the circumstances under which cover does and does not apply. Some funds have already taken the first steps to doing this by including their policy document on their website.
It is already not uncommon for it to be noted in PDSs that where there are inconsistencies between the PDS and the insurance policy, the policy wording will prevail.
However, it is hard to see the Superannuation Complaints Tribunal not agreeing with a member who assumed the extent of their insurance coverage from what they read in their fund's PDS. This is especially likely to be the case if the varying terms in the policy document are considered decidedly more difficult for the average person to understand.
Under these new regulations, trustees' best chance of limiting their exposure will be to ensure they inform members sufficiently in the PDS about the terms of their cover. They will also need to be certain there is no mismatch between the information provided in the PDS and the insurance policy, and that the policy is as clear and comprehensive as possible.
