Australia’s Federal Court has ordered the Construction and Building Unions Superannuation Fund (Cbus) to pay a penalty of A$23.5 million ($15.17 million) for systemic failures in processing death and disability insurance claims, highlighting the importance of timely claims handling in the superannuation sector.

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Background of the Penalty

The fine was imposed on United Super, the trustee of Cbus, after the fund admitted to systemic faults that caused delays affecting over 7,000 claimants. These delays involved death benefits and total and permanent disability (TPD) claims, drawing the scrutiny of the Australian Securities and Investments Commission (ASIC).

ASIC Deputy Chair Sarah Court emphasized the severity of the breaches:
“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.”

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Impact and Compensation

Cbus confirmed that it has provisioned for the penalty in its accounts and will not raise member administration fees to cover the fine. The fund also issued an unreserved apology and reported that compensation has now been paid to almost all affected members.

Prior to the penalty, Cbus had already paid approximately A$32 million in compensation under its remediation program for the estimated 7,402 claimants affected by the delays. Remarkably, the penalty exceeds United Super’s A$18.5 million revenue in fiscal 2024, underlining the gravity of the misconduct.

The fund has also resolved disputes with MUFG Retirement Solutions, its claims administrator, related to the backlog and delays in processing claims.

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Notable Cases and Public Scrutiny

One particularly concerning case involved a widow who reported in June 2023 that she had been waiting 15 months for her late husband’s death benefit. Following public attention, Cbus opened an investigation and lodged a breach report with ASIC, highlighting failures in communication and responsiveness.

Tim Waterer, Chief Market Analyst at KCM Trade, stated:
“Outsourcing claims administration doesn’t outsource responsibility, and today’s ruling is a stark reality check for every trustee relying on third parties. Timely claims handling is non-negotiable.”

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Implications for the Superannuation Sector

The Cbus penalty serves as a wake-up call for trustees across the Australian superannuation industry. Key lessons include:

• Responsibility for third-party administrators remains with trustees
• Timely claims processing is critical for maintaining trust with members
• Regulatory bodies like ASIC are actively monitoring compliance and remediation efforts
• Public scrutiny can amplify operational failures, making transparency essential

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Conclusion

The A$23.5 million penalty against Cbus underscores the seriousness of systemic failures in claims handling and the importance of member-centric processes in the superannuation industry. By addressing compensation and improving operational oversight, Cbus aims to restore trust with its members.

The case also reinforces that regulatory compliance, effective claims administration, and clear communication are crucial responsibilities for all superannuation trustees in Australia.