Group life insurance will again face scrutiny under a Productivity Commission review of the superannuation industry.

The commission will examine whether the cost of insurance is being minimised for members.

In a review framework, the commission says there has been little analysis of the cost of holding insurance within and outside super.

“The differential could be measured by comparing average premiums of life or total and permanent disability insurance purchased within super for a notional member, to the costs of an equivalent product on a retail basis,” the document says.

“An understanding of how much any price discount is explained by differences in taxation treatment will provide relevant attribution context when interpreting this indicator.”

The commission concedes this is challenging due to the complexity of policies and variable disclosure standards.

It says some comparison data is available from Australian Prudential Regulation Authority (APRA) assessments of insurance costs in MySuper products.

“However, it is likely that further information would need to be sourced from industry or through surveys,” the framework says.

“The commission will also examine which data or rules of thumb fund trustees use to determine whether insurance premiums are unduly eroding member balances.”

This will involve examining a fund’s insurance administration costs, rather than premiums alone.

“In an efficient market, the fees associated with administration would decline over time as fund scale increases or more efficient processing systems and technologies improve cost efficiency. Although this would also need to take into account the incidence of claims and differences in membership base.”

The commission says insurance fee data available from APRA appears “to be of poor quality” and further work is needed to clarify its suitability for the review.

The review will examine insurance provider selection, and whether it is conducted at arm’s length.

“Applying this indicator would require comparing premiums charged to members for similar insurance products by funds that utilise related and non-related parties, over time.

“The interpretation would need to examine the extent to which funds face constraints in choosing their insurance provider.”

The commission wants feedback on the proposed framework by September 9. There will be roundtable discussions with industry stakeholders later this year.