Report Calls Out High Commissions For Advisers

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The high rate of commissions for New Zealand advisers has been a focal point in the RBNZ and FMA’s recently released report of life insurers’ conduct and culture.

Aside from its overall conclusion that the review shows the life insurance sector in a “poor light” (see: Regulators Life Insurance Report…), the regulators expressed concern for what they identified as New Zealand’s very high rate of commissions for advisers, far exceeding those in other countries.

“High rates of commission have a detrimental impact on the premium affordability of life insurance for consumers,” the report stated, referring to the graph below, which showed the country’s high rate of commissions accounting for over 20 percent of gross premiums paid by consumers.

“In our view, high upfront commissions are not acceptable as they drive poor conduct and can result in poor customer outcomes,” the report continued.

The regulators were clear that they expect life insurers to review their commission structures and volume bonuses for intermediaries, including the very high upfront commissions compared to ongoing or ‘trail’ commissions.

The report noted how some insurers appeared to believe they have no responsibility for customer outcomes that are influenced by the conduct of commission-based advisers.

“Insurers ultimately need to take responsibility for whether or not customers are experiencing good outcomes from their products, regardless of how they are sold.”

The report added that, “Insurers ultimately need to take responsibility for whether or not customers are experiencing good outcomes from their products, regardless of how they are sold”.

The regulators outlined the following recommendations for life insurers regarding oversight of intermediaries:

  • Insurers need greater oversight of how intermediaries are selling and managing their products
  • Intermediaries need to receive comprehensive training on insurer’s conduct expectations, and on all aspects of the insurer’s products (including customer suitability) before they can sell them. They should also be subject to ongoing accreditation to ensure knowledge is maintained.
  • Insurers need a robust and transparent policy and processes for dealing with misconduct by intermediaries

It also noted that advisers should be incentivised for providing ongoing service and advice to customers about product suitability and for maintaining good customer outcomes.

The 16 life insurers included in the review were: 

  • AIA New Zealand
  • American Income Life Insurance Company
  • AMP Life
  • Asteron Life
  • BNZ Life Insurance
  • Cigna Life Insurance New Zealand
  • Co-operative Life
  • Fidelity Life
  • Kiwi Insurance
  • Medical Life Assurance Society
  • OnePath Life (NZ)
  • Partners Life
  • Pinnacle Life
  • Southsure Assurance
  • Sovereign Assurance
  • Westpac Life NZ