If a super fund trustee is forced to buy insurance from a related party, fund members end up spending more on insurance, according to an Australian Prudential Regulation Authority (APRA) study.

The research, conducted by Kevin Liu of the University of NSW and APRA Head of Research Bruce Arnold, examined premiums in 52 retail funds over a six-year period (non-profit funds do not have related insurance providers).

In 20 cases the trustee was related to the insurer and in all but one that insurer was nominated to provide cover to fund members.

Mr Liu, a lecturer at the university’s Australian School of Business, and Dr Arnold say trustees should consider their duty to negotiate as favourable a premium structure as possible.

They say trustees may argue that the trust deed binds them to a related-party insurer, so they have limited leverage.

“If this is truly the case, we note that insurance companies themselves are regulated entities,” the researchers say, citing the Life Insurance Act obligation on insurers’ directors to prioritise the interests of policyholders.

Mr Liu and Dr Arnold say their research supports moves to amend the Superannuation Industry Supervision Act so rules that limit choice of service provider are void.

The paper says the super sector has become increasingly important to the life insurance industry, with related policies accounting for 42% of all term-life and disability premium income.

Super accounts for 87% of gross revenue in group policies.