Are Risk Commissions Too High?

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Are life insurance commissions in New Zealand too high?

  • No - present levels are appropriate (75%)
  • Yes - there should be a lower cap (21%)
  • Not sure (5%)

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Our latest poll is based on a recent report released by the Reserve Bank which includes a statement that life insurance commissions in New Zealand ‘…are particularly high’ (see: Reserve Bank Questions Risk Commission Levels).

In an established and relatively scandal-free NZ life insurance sector, free market forces have determined, over a long period of time, the remuneration available to advisers that can accompany the placement of a retail life insurance policy with a product manufacturer.

InĀ  recent years, upfront commission available on new business has climbed as high as 230% of the first year’s premium. However, this high water mark related more to a one-off initiative and a more general benchmark for upfront commissions sits at around 150% – 180%, accompanied by a two-year responsibility period and annual renewal commissions averaging between 5% and 10%.

Is this too much? Is it not enough?

Remuneration for delivering appropriate life insurance advice solutions should recognise the challenges associated with that task…

Any risk focused adviser and small business person has the responsibility to both serve the best interests of their client and to build a robust and profitable advice business. Remuneration for delivering appropriate life insurance advice solutions should recognise the challenges associated with that task and the almost inbuilt resistance of consumers that prevents them from making the first move to adequately protect themselves and those around them.

If it was easy, anyone could do it. But it’s not; and risk-focused advisers deserve appropriate remuneration for the critically-important services they provide.

In recent years, though, particularly post GFC, regulators across the world have been comparing notes and considering all issues, appropriately, from the perspective of the consumer. We’ve seen recommendations to ban all risk commissions in the UK reversed and recommendations for 20% capped commissions (plus stipulated on-boarding fees) rejected in Australia before its Government mandated a 60% upfront cap with 20% renewal commission.

If it was easy, anyone could do it…

NZ regulators are naturally linked into a global network with their colleagues in other jurisdictions. So, when the RBNZ makes a statement that it thinks life insurance commissions in New Zealand are ‘particularly high’, this comment should be considered within the broader global context.

After 1 January 2020, life insurance commissions in Australia will be capped at 60% upfront and 20% ongoing. Could your advice business survive and prosper on this level of remuneration?

As can sometimes be the case, the poll question itself is a little simplistic, as it doesn’t necessarily take into account volume bonuses, other ‘bulk’ business incentives, which are often shared between aggregator businesses and their advisers, and other ‘soft’ remuneration permutations.

We also appreciate that a question about whether, at least in some instances, you think you’re being paid too much, may be a dumb thing to ask, especially when taking into account that only a proportion of life insurance policy proposals are ever accepted, and that it often takes a lot of time and resources to serve your client’s needs at claim time. But we’re asking anyway!

Do you agree with the RBNZ that, by implication, it thinks NZ risk commissions are too high? Or do you hold that you’re appropriately remunerated for what can often be a very challenging task to which most business people – most people, are not suited?

Tell us what you think and we’ll report back next week…