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Advisers replacing policies are doing their jobs

Insurers react to report. OnePath doesn't agree with much of it. Partners says the authors guessed numbers and Asteron becomes fifth company to quit the FSC.

Monday, November 23rd 2015, 5:00AM 2 Comments

by Susan Edmunds

The Melville Jessup Weaver Review of Life Insurance Advice report, released this morning, says independent advisers are being encouraged through high upfront commissions to sell clients more cover than they need and replace their policies more frequently than they should.

Report author David Chamberlain said commissions had reached their currently levels of up to 200% upfront as insurers competed aggressively for adviser affections.

But he said now they were stuck because no insurer could move first to cut commission and risk losing adviser support as a result.  Insurers had given advisers the impression that replacing business was appropriate.

He said replacement policies made up about 50% of advisers’ sales while bank insurers were only operating at a rate of about 10% replacement business.

Partners Life managing director Naomi Ballantyne said there was no supporting evidence to back up the numbers in the report. “They’ve guessed.”

She said, even if the rates were correct, replacement business was not always a problem. “Advisers should be actively reviewing their clients’ policies to make sure they stay relevant.  There is no balance in the report... even if they are operating at 50% replacement, if that is in clients’ interests, what is the problem?”

She said product research showed little reason to transfer policies from a life insurer to a bank provider, so even if bank staff were only writing 10 per cent replacement business, that was still “way too high”.

“Partners Life strongly believes that advice and advocacy, which is independent of the influence of any one product provider, delivers the best outcome for consumers,” she said. 

“Taking into account the fact that consumers will not pay fees for life insurance advice, commissions are effectively the only remuneration structure that enables advisers to remain truly independent of product providers.

“The potential for advice conflicts of interest exist, irrespective of the remuneration structure that applies to a distribution channel, and the industry should consider how to address those conflicts of interest across all distribution channels for the benefit of consumers, whilst ensuring consumers continue to have the widest possible access to their choice of distribution channel, and also ensuring we do not exacerbate the existing underinsurance gap.”

Asteron Life quit the FSC on Friday over the report. Managing director Nadine Tereora said she did not think the report fairly represented the adviser community.

But John Body, managing director of wealth at ANZ , said the industry needed to keep some perspective.

He said the report should be viewed as a data point, and part of a debate that was happening around the world. New Zealand could not be immune from that.

“We don’t look at it as some kind of seminal report which is going to mark the changing of the guard.”

He said OnePath, part of ANZ, did not agree with the proposed changes to commission structures.

Commission was not the debate the industry should be having, he said. Instead, it should be discussing the problems of underinsurance and how to get more advisers into the industry.

“You don’t start with commission structures to build a sustainable industry,” he said. “The market sets commissions.”

The report relies on lapse rates through three distribution channels to come to its conclusions.

The report’s authors acknowledged it was hard to get good data.

Body agreed it would be difficult.  “It is very hard to look at industry lapse rates.”

OnePath distributes through the ANZ network and financial advisers. Body said its data showed a range of different things.

He said:  “it’s hard to [look at lapse rates] and generalise and say there is an issue.”

OnePath would not support any changes that made it harder for the advice industry to prosper.

Body said OnePath dealt with “a tremendously talented and passionate group of advisers doing a great job for their customers".


What the MJW report recommended. Plus Minister's response

Partners, OnePath and Asteron have their say

Blog: Philip Macalister scores the report a D

What FSC members wanted

Advisers say not fair


Tags: ANZ Asteron John Body Life insurance MJW Report Naomi Ballantyne OnePath Partners Life

« Advisers: MJW report not fairReport tore apart FSC »

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Comments from our readers

On 23 November 2015 at 9:46 am interested2 said:
Never thought I’d say it, but Naomi is becoming/ has become a voice of reason in the life insurance market. Another, well known and respected voice remains quiet (even moreso than bank owned OnePath), I can’t help but wonder why Fidelity has resisted joining the other insurers.

Maybe it’s the TOWER factor?… if your management/ board had a brought a business (that was significantly larger than your existing business), then did not pass back upgrades or allow increases in cover… As consumers begin to leave (which is in their best interest) maybe that same management/ board would also look to point the finger at someone else. Advisers (and the churn suggestion) are an easy target as advisers understand how far behind the TOWER policies are becoming, and they more often deal with customers that have complex/ changing needs.

Just a thought.
On 23 November 2015 at 12:20 pm RiskAdviser said:
Nicely put interested2! The FAA and Code says put the client first, So too does the FMA, Naomi and other industry leaders are clear on that too. Funny when you do that you get strong adviser businesses & happy clients, can't see the problem with that so far!

You only have to look at the product research to see where most clients are going to be better off and it's not with the banks and their square peg in a round hole offer. It's also not with stale, old products that are getting expensive because those that can move, have moved.

Yes Partners Life seems to be on the winning side of most of these situations, but not all as underwriting has an impact where other providers are still better even if the product isn't quite as sharp. And this is the market at work.

So long as the move is an improvement in an informed, fully disclosed way, that gives the client the options to consider then that's what the regulator wants.

Personally I know what it costs to run my business, If an insurer chooses to pay me more than is required then I generally pass this on as discounts to the client. I'm probably one of the few that have a business strategy around this, my point; commission doesn't drive my selection but it certainly pays the bills.

Finally; everyone talking about fee based advice for insurance is missing an important fact, clients don't pay fees for what they don't know, until they do. Almost every case my clients know what life cover is but very few understand what life insurance is. Once I'm done, the most common comment I get is 'Thank You, I didn't know there was so much to this and I'm able to make better decisions for me and my family' They then usually put a range of benefits in place rather than just life cover. If you apply fee for service to life cover enquiries, clients will miss out of the advice they really need!

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