Moving from a commission structure for financial advisers to a user-pays model “…could significantly reduce access to insurance advice for customers”, says an independent report on New Zealand’s life insurance sector.
Authors of the Deloitte report also say changing the way advisers are remunerated has the potential to further exacerbate the underinsurance issue, “…particularly given that the adviser channel dominates the market”.
The firm’s 18-page New Zealand Life Insurance Sector report was commissioned by NZ insurer, Partners Life, to detail, analyse, and establish key trends in the country’s life insurance sector.
The professional services and accounting firm’s report says a key role that advisers play is to ensure their customers understand the value of life insurance and purchase the appropriate products for their needs, which, it says, fulfills the educational gap identified by the Reserve Bank of New Zealand’s (RBNZ) January 2020 Bulletin.
The report’s authors say: “There have been suggestions that commissions provide the wrong incentives and so, they should be banned. However, this assumes an appetite for consumers to pay directly for advice.
“A ban on commissions could significantly reduce access to insurance advice for customers and has the potential to further exacerbate the underinsurance issue in New Zealand.”
Among the report’s findings is that the life insurance market in New Zealand is unique, implying that the government and regulators should be cautious when comparing the local market with those seen offshore.
Deloitte points to the insurance penetration rate which is used by the authorities as an indicator of whether a population is adequately insured.
“It is calculated as the ratio of gross premiums to GDP and is used by the RBNZ as a measure for comparison of life insurance sectors across different countries,” it says.
“In the case of a unique market such as New Zealand, this measure is not readily comparable with other markets.”
The key reasons for this, says Deloitte, is because of the various State and private schemes that are in place to help protect people.
So, “There have been suggestions that commissions provide the wrong incentives and so, they should be banned.”
I have no hesitation whatsoever in saying the people making these comments are ill informed, have no personal knowledge of how insurance remuneration processes actually work, both initially or in ongoing servicing manner and they’ve only operated in a PAYG environment themselves.
There’s very clearly an image problem with the actual word ‘commission’ for some people but there’s no actual problem with how they keep the life insurance industry wheels turning. Change it and be warned…those wheels are going to grind to a rapid halt.
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