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Some advisers earning more than $750k per year

Insurance premiums would fall by up to 6% if advisers’ commissions were cut by a quarter, a new report says.

Friday, May 13th 2016, 6:00AM 9 Comments

by Susan Edmunds

The research from NZIER was discussed by a panel in Auckland yesterday.

The report, Resetting life insurance, said insurers paid average commissions of $221 million per year on new business of $123 million per year over the period from 2012 to 2014.

Cutting the commission costs by 25% would initially cut premiums by 3.5%, which would increase to a saving of 6% over time.

The panel said New Zealand’s insurance industry had a trust problem. This country has the third-lowest life insurance penetration in the OECD and the number of people with life insurance is static.

Panelists pointed the blame at insurance advisers – Retirement Commissioner Diane Maxwell said there was more work to be done to engage the growing number of Maori and Pacific Island consumers.

Other panellists said more work was needed to show people the value of insurance.

But Consumer NZ chief executive Sue Chetwin said more transparency about the industry was not the answer because consumers would not respect many of its practices, such as high upfront commissions and soft commissions.

“We’re talking about educating consumers about life insurance, what would you actually be telling them? Would you tell them that when they are being sold into a life insurance policy that the adviser is likely to be making a 230% commission on it? Are we going to tell them that within a couple of years of that, the insurance adviser will come back to you and sell you up?”

She said the industry needed to rethink its future and tidy up its own house before it focused on other reasons that consumers might not see value in life insurance.

PAA chief executive Rod Severn argued for advisers, saying the “vast majority” of his members had consumers’ best interests at heart.

The report also said just 1.2% of advisers had the top 20% of the annual premium in the market, and the bottom 50% shared 5%. The highest-paid advisers had annual income of $778,000 each.

The report said the highest-earning advisers would be least likely to leave the industry if commissions were tweaked. Those earning the least were likely selling insurance as a secondary source of income and would probably give up if the rules changed.

The calculations were based on Sovereign data.

Tags: Life insurance Sovereign

« MJW fallout unexpectedRisk poor policy analysis could affect commission decisions »

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Comments from our readers

On 13 May 2016 at 12:12 pm Backstage said:
This is like listening to talk back at 3 in the morning... aside from Rod... how do these others get the talking stick and how researched is their opinions.... are you just trying to get a rise Susan :)
On 13 May 2016 at 12:29 pm Ron Flood said:
Wow, a 6% saving in premiums. How about a 52.8% reduction in premiums? That's right, a 40 year old non smoking client purchasing $500,000 of cover in 1990 with a company I deal with could get the cover for $900 per year.

That same company now charges $425 per year for the same cover. In 1990 I received 150% by way of upfront commission and bonus, total $1,350. I also enjoyed a free office, printed stationary, telephone system, secretarial assistance and a company subsidised mortgage.

Fast forward to 2016 and I now receive 180% if I take the full upfront commission (my actual with this company this year is approx 100%), total $765.
I lease my own office, pay my own staff and all business related expenses.

With regards 'upselling' Sue, are you then saying that a real estate agent who 'upsells' a client after two years that their commission should be reduced?

If a client with a mortgage dies and is not insured it is likely the family would need to sell. The commission they would pay on a $500,000 house would be around $17,000 to $19,000.

I am sure that even if life insurance commission was 230%, i.e a total of $977.50 on the premium above, a client would be much happier to have the cover rather than have the family forced to sell their home. The commission paid is irrelevant.

I was also interested in the panel members who lay the blame on insurance advisers for the low levels of insurance. What about the 'she'll be right' attitude that many Kiwi's have. Many think the Government will take care of them so don't bother to insure.

Finally, I would suggest it would be very unlikely that insurers would reduce premiums if they reduced thier costs of acquisition. They are more likely to use this to increase the quality of benefits so as to attract more new business.
On 13 May 2016 at 2:58 pm Chartchecker said:
90% of greedy industry players do not want to disclose that the quasi loans made against the policy to fund high commissions, which also incur interest and costs, are a direct unlawful activity under the credit contracts act - but hey, that's not as bad as building secret conceal discretionary weasel clauses into policies so as to be able to decline claims later, which advisers all sell with a false promise in their belief that they are good people. Trust is gone in the industry is an understatement. Its become a criminal pursuit since insurers become listed and pursue profits for shareholders by milking policyholders every way possible. The life insurer puts profit before sick and dying people. And the industry has seen nothing yet - e.g. check out on a basic level this story in Australia - but does NZ regulators check conduct over here? NO !! yet the evidence is grossly abundant...
On 13 May 2016 at 4:30 pm Ron Flood said:
Chartchecker. Your rant above confirms what us unaligned advisers already know, buy insurance from a bank at your peril.
On 13 May 2016 at 5:33 pm Dirty Harry said:
Hi Chartchecker. Thanks for your views. I would love to discuss this with you over a beer one day. Also American politics, and the true causes of the GFC. The oil industry would also be fun. I would really appreciate some advice on the correct folding methods for my tinfoil hats. I think thee signals are still getting through.
On 13 May 2016 at 5:48 pm Bruce Cortesi said:
Fellow Advisers, it is not necessary to add fuel to a piece of media that is very one sided. It is only providing one perspective. You and I already know the truth and the high value we add to the Consumer. It is very sad that as always, the value of the Adviser channel is measured only in commission, and not in the value we add that is outside this debate. You know as well as I do that every year Insurers tell us how valued we are, how big a difference we make in the lives of the Consumer. Believe it even if this debate suggests Product Providers don't. Keep up your passion for the industry and the Consumer. Thank you Rod for your support.
On 13 May 2016 at 10:37 pm RWAW said:
Chartchecker have you had a claim declined through non disclosure?
The vitriol of your posts suggest a massive problem with the industry as a whole. In the spirit of a normal response from most industry players how can we help you resolve your issues?
On 14 May 2016 at 5:46 pm said:
The blame is on advisers? How about idiotic articles such as this that the consumers see. I can't recall the last article stating the good we do and the billion+ dollars that advisers are responsible for putting in to the hands of needy families and businesses every year. I work my backside off not only to give advice but to find the individuals to give that advice to. Commission cuts will drive advisers out of the industry and put the consumer at the mercy of snotty nosed bank tellers who are no more qualified than to say 'do you want fries with that'. Worse still, DIY insurance. The problem is the perception of the industry has not evolved from the past where we were viewed as insurance 'sales people' I'm an adviser and I take that very seriously. I've never sold a client a policy, I give them advice and guide their decisions. How about the media start publishing good about our profession and not regurgitated rubbish like the above. And while you are at it stop handing out agencies and designations to people who have no industry experience. Either have a minimum eduction standard or scrutinise advisers to have some level of competence which could be experience. Otherwise ask them to do an apprenticeship under an adviser or business. A builder doesn't turn up to a work site, alone, after a 1 week course and a bag of basic tools. I'd also like to know where 230% came from. My average is certainly much less than that.
On 16 May 2016 at 2:00 pm Observer said:
Why is 'commission' such a dirty word? An (insurance) adviser's role is to educate clients as to their insurance needs, recommend products that meet those needs and help the client to implement them. Thereafter, a good Adviser will review the client's situation on a regular basis.

Is is so terrible that an Adviser should be paid for all this work? A commission from the insurance provider is the logical remuneration. There should be no enforced uniformity of commissions: each provider should be able to set their own remuneration structures.

Clearly, the policy owner will through their premiums bear the cost of the adviser's remuneration. If the client does not like the cost which will be reflected in premiums, they can always go elsewhere.

Sadly, there will always be bad apples in the industry. Driving down commissions will not change this - in fact it might increase adviser dishonesty because it will be so hard to make a living. Like a real estate agent, the insurance adviser deserves to be fairly remunerated for the value that they add to their clients.

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