APRA researchers query retail group insurance value

The Australian Institute of Superannuation Trustees (AIST) has pointed to new Australian Prudential Regulation Authority (APRA) research which suggests members of retail funds may be paying too much for insurance.

The APRA research was presented to an AIST research symposium this week and prompted AIST chief executive Fiona Reynolds to question whether retail funds utilising related party insurers represented a conflict.

"Clearly, it is not in members' best interests if a retail super fund is prevented from sourcing the best insurance deal in an open and competitive marketplace," she said.

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The APRA research, conducted by Kevin Lieu of the University of NSW and APRA's Bruce Arnold, pointed to super trustees having "a moral and legal obligation to act in the best interest of members" before claiming that 20 of the 52 retail super funds they studied utilised a "related insurer" to provide insurance to fund members.

They then went on to say that members of such funds had more insurance than their counterparts in non-bound funds and that "a member of the median bound fund pays average annual premiums of $252, or roughly twice the average across all other types of funds".

The study claimed that, in effect, there were two insurance markets - lower-cost group policies versus higher-cost individually underwritten policies - each with its unique cost-benefit trade-off.

"That said, the very existence of bound funds suggests that offering both superannuation and insurance products is part of a single business model," it said.

"If the insurance arrangements of a given superannuation fund effectively increase the uptake of higher-cost insurance products, best practice requires that the value proposition to fund members be transparent."

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