News Life and Health29 Nov 2018

New Zealand:Regulator shines spotlight on life insurance commissions

| 29 Nov 2018

The Reserve Bank of New Zealand (RBNZ) is sending a strong signal to the life insurance industry that broker commissions are too high compared to those in other markets.

The central bank’s latest six-monthly Financial Stability Report, released yesterday, contains a chart showing that commissions on life insurance policies in New Zealand were 20.4% of gross premium revenue in 2016, the highest among 23 different markets, reports Newsroom.

The country charging the next highest commissions is Mexico at a much lower 12.8%. Countries New Zealand would prefer to be compared with range from Denmark at just 0.2%, Germany at 6%, the US at 6.6% and Australia at 9.2%.

Referring to the chart, RBNZ governor Adrian Orr told journalists at a media briefing, “We put it there specifically because sunlight is a good disinfectant.”

“We can’t micro-manage this industry but it has some real specific issues.”

The Financial Stability Report says too that the life insurance sector has been slow to adapt to changes in the market, including new technologies and changing consumer preferences towards online product distribution. Instead it has relied largely on the traditional advisor sales channel, where life insurers pay high commissions to advisors.

Insurance advisors have an important role in helping buyers select insurance products that meet their needs. However, the high level of commissions and other incentives that life insurers pay to advisors can create conduct risk. In some cases, advisors could be incentivised to encourage policyholders to switch to different insurance policies even if the changes do not benefit the policyholders.

“Such activities can compromise the efficiency of the sector, because policyholders may not be matched with the best policies, and ultimately end up funding high commissions through high premiums,” the report said.

The conduct and culture of life insurers is currently under review by the Financial Markets Authority and the RBNZ which will present the results of their study in January.


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