Group life insurance is not considered an essential part of superannuation and the Productivity Commission will not comment on models in its review of the sector.

In a draft report on future super fund models and how members select them, the commission says there are conflicted interests for trustees when offering life insurance.

It has proposed unbundling life cover from super funds in a discussion paper.

“The commission recently noted the conflicting objectives placed on trustees, the difficulty in articulating a clear purpose for insurance in super and the efficiency implications – both positive and negative – of bundling insurance with the product,” the report says.

“It should also be self-evident to funds and their advisers that the Federal Government’s stated objective for the super system does not envisage insurance as an essential element of the system.”

The draft report says the commission will not look at bundling life insurance into super as part of the final report.

“The sole focus at this stage is on allocating members to default super accumulation products, not insurance products.

“The former requires the decision-maker in all models to make very challenging trade-offs, even before insurance is considered.”

The commission will assume trustees bundling insurance in their products meet all fiduciary and legislative obligations.

“Ultimately, protecting member interests with respect to bundled insurance is a task for well-specified and adequately enforced regulation that sets out clear rules for minimum product quality standards and level of cover,” the report says.

Actuary Rice Warner has expressed concern at the exclusion of group life from the review.

“Given that group insurance represents 70% of all life insurance premiums, we do regard it as a core element,” it says. “Life insurance has its problems. However, insurance provided through super is cost-effective and provides easy access to insurance for the whole community.”

Rice Warner says it will make a submission to the commission on group life’s role.