Asian News - New Zealand: Life insurance report stirs fierce controversy over advisers
Source: Asia Insurance Review | Jan 2016
A report ordered by the Financial Services Council (FSC) which proposed cutting upfront commissions has stirred controversy over life insurance advisory practices even though the government had signalled that it is “highly unlikely” that it will restrict insurers from paying commissions to brokers or advisers.
The report, entitled “A Review of Retail Life Insurance Advice – An Opportunity for a New Beginning”, indicated that inappropriate policy replacement activity adds 10-15% to costs. This equates to over NZ$100 million (US$67 million) a year in excess cost to customers and to the national economy, said actuarial firm Melville Jessup Weaver (MJW) which carried out the analysis.
The report said that the analysis shows high upfront commissions paid to advisers when they sell a new policy are driving them to replace policies more frequently than they should. It also said about 10% of banks’ policies are replacement policies but up to half of advisers’ sales are.
Proposed changes include scrapping the up-front commissions for advisers switching a consumer to a different insurer within a seven-year period and reducing the up-front commission for new customers from up to 200% of the first year’s premium to 50%.
Debate is fierce even though Minister of Commerce and Consumer Affairs Paul Goldsmith, speaking at a conference before the report was released, had said: “There are countries around the world that ban commissions, full stop, and I think that’s probably carrying it too far.”
He had said that instead of regulating commissions, “the preference would be devising a disclosure regime, which is clear and simple and effective.”