Superannuation and Insurance: Related Parties and Member Cost

Abstract

Superannuation trustees nominate insurance companies to provide tax-advantaged coverage to members on an exclusive basis. We compare the premiums paid by members to the benefits received, and investigate whether the ‘relatedness’ of the trustee and insurance provider has an impact on members’ net insurance costs. Focusing on 52 retail sector funds, we find that the most relevant characteristic is whether the trust deed establishing the superannuation fund required the trustee to use a related insurance provider. We find that members of these funds purchase more insurance, and that their coverage is in the form of higher-cost products.

Keywords: Superannuation, pension fund, outsourcing, insurance, related-party service provider

JEL Classification: G23