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Insurance has a bright future, but needs to change: FSC

Middle-income earners are getting less advice about their insurance needs because of regulation, says Financial Services Council chief executive Peter Neilson.

Monday, December 2nd 2013, 1:40PM 2 Comments

by Susan Edmunds

The FSC's annual review shows that New Zealanders were underinsured by $141.918 billion in life cover, $237.641 billion in total permanent disability, $42.411 million in critical illness cover and $1.933 million in disability income protection.

Just 15% have income protection.

The FSC said the insurance sector had a bright future if it could transform into a customer-aligned service industry, with flexible products to meet different life stages, offers written in simple language, and with professional and cost-effective advice.

Neilson said advisers had tended to focus on one particular type of product, rather than helping consumers understand all their policies and investments and how they might work together with their circumstances.

He said advisers needed to be able to talk about a range of products.

“Regulatory changes are helping in some ways, because it’s important that people get competent advice from someone honest but it’s become more likely that people are not getting advice.”

He said the biggest change was for middle-income earners. Those on the lowest incomes would not have been getting advice anyway and those at the top-end of the income scale were still sought after by advisers.

He said the number of middle income people getting advice was likely much less now than it was before regulation. “People are now not able to get what they need as easily … to offer advice advisers have to be willing to take on that responsibility on the back of a 20 minute conversation. It might be a difficulty for us in future, we may end up with much more simple products because we’ll end up with what we can sell rather than what’s best for people.”

The FSC report said that $1.1 billion was paid out by policies in the year to June 30. Of that, $422.5 million was in death benefits from term insurance policies.  That was followed by maturity benefits, trauma benefits and then income protection benefits.

There was $244.526 billion API in lapses, surrenders and cancellations and $20,151.58 billion in API in force at the end of the year.

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Comments from our readers

On 9 December 2013 at 1:09 pm Broker said:
Neilson said advisers tended to focus on one particular product. Really? I'm sure most advisers would offer good advice and address a range of risks through a variety of insurance solutions.

Direct and online insurers offering basic products are probably more the issue...

I'd like to see the stats on how much insurance is sold by AFA's and how much is sold by RFA's who specialise in insurance. Most people don't want to pay an AFA for their time and every investment adviser I know doesn't seem to do much on the insurance side of things - they just don't specialise in it. Just like as an RFA/insurance adviser I don't specialise in investment advice. So is regulation really helping people get insurance advice - doubt it.
On 12 December 2013 at 3:03 pm Allistar Walker said:
Possibly these comments by Neilson are borne on the significant weighting that banks now have in the risk business.
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Changes to the wording make it easier to issue policies, but advisers should be careful about proof of income.

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