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Law reform process asks: Are commissions bad?

Whether there is a need for more regulation of insurer conduct will be a key part of the insurance contract law review, Commerce Minister Kris Faafoi says.

Tuesday, May 22nd 2018, 9:29AM 2 Comments

Public consultation has begun as part of the review process.

A discussion paper has been released, which asks submitters what effect sales incentives such as commissions have on consumers. 

It said feedback was requested on whether incentives in all sectors of insurance were causing poor outcomes for purchasers.

The paper points to examples of pressure-sales tactics seen in Australia and asks whether there is evidence of similar problems here.  It also references mis-selling in the UK and Australia and asks whether insurers or advisers are selling unsuitable products in New Zealand.

"A wider harm from insurance churn is that if larger commissions are paid by insurance providers to intermediaries for replacement business then these costs are likely passed on to all purchasers of insurance through higher premiums," the discussion paper says.

"Further, a focus on replacement business limits the time spent on sales to new customers, who may gain benefit from life insurance."

Faafoi said insurance had an important role in New Zealand.

"A well-functioning insurance system, where all parties can transact fairly and with confidence, is vital to ensure insurance continues to serve all New Zealanders.

“But there are significant problems with New Zealand’s insurance contract law which are undermining the effectiveness of our insurance markets and impacting those who do not receive the support they anticipated from their insurance policies.

“I have heard, for example, that consumers are sometimes not covered for losses or unable to claim for important needs like health treatment because they innocently did not disclose seemingly unrelated matters to the insurer.

“This is really tough for people who genuinely believe they have met their requirements and are later unable to rely on benefits of insurance. So onerous disclosure requirements are one of the issues we need to consider and, I hope, an issue that will be addressed in feedback from submitters.”

New Zealand’s insurance law was outdated with legislation spanning six different Acts, some more than 100 years old, he said.

“The world has moved on and some parts of the law – like the disclosure obligations consumers face – no longer strike the right balance.

“Experiences following the Christchurch earthquakes – and more recently issues highlighted by the Royal Commission over in Australia – have also highlighted the need to look at whether greater regulation of insurer conduct is required. I will be considering the regulation of insurer conduct as part of the review.

“Insurance affects nearly everyone so I encourage everyone with an insurance story to let us have their views.”

Tags: Kris Faafoi

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Comments from our readers

On 23 May 2018 at 10:05 am Tash said:
Global warming is not the greatest threat to mankind. The quality of our thinking is!
Are commissions bad???? Are they any worse than a salary? Arte advisers expected to work for free? We are headed back to the bad old days of insurance company employed, tied agency forces, where companies that spend the most on advertising will sell the most even if their products are the worst. Where "advisers" will offer only one provider's policies, where the best sellers will attract the highest salary and still only sell one company's product. Sadly ignorance seems to rule supreme.
On 23 May 2018 at 2:55 pm Dirty Harry said:
Ah Mr Faafoi. The guy who in a Goodreturns video was directly asked if he got his recent life insurance policy through an adviser; And laughed. And said, no, his partner is the financial planner. Check the FSPR, nope; Mae is not there.
Watch here from 2:50 https://vimeo.com/264512326
The same guy who still thinks he’s in the 5-years-dead AXA KiwiSaver.
The guy who seems to think that providing an effective advice service, including regular reviews and updates to existing customers, which occasionally results in a replacement policy would somehow limit time spent selling to new clients.
It’s called step 6.
He’d know that if he tried not laughing and actually engaged a good adviser.

The TOR of the Insurance Law Review says nothing about reviewing commissions:
A focus on commission barely sits within that scope. And if it does, how about the secret commissions AKA "incentives" used by "I'm on a salary" types who can only sell their employer's high-cost products?
Are commissions bad? No.
How about asking a better question in the first place: Is undisclosed conflicted remuneration bad?
Are secret sales targets and KPIs and other undisclosed "incentives" bad?
Is replacing high quality insurance products arranged by non-aligned advisers with in-house low-quality products purely on the basis of price with no other "comparison" or suitability assessment, and no Replacement Policy Advice form bad?
Is it bad to use a short-hand or "simple" underwriting process to implement said low-quality products when replacing a high-quality product that resulted from a thorough underwriting process?
Has life insurance become cheaper in Australia?
Has replacement business become less of a problem in Australia?
Was commission-based adviser conduct ever really the problem in Australia?
What does commission have to do with policyholder disclosure requirements? And remedies for non-disclosure? And unfair contract terms?
And consumers who find if hard to compare prices and policies?
Gee, if only there were more people around who could help consumers find and compare prices and policies and help them to understand their disclosure requirements and assist them as they navigate their way through those contract terms as they claim…. Someone who was prepared to get paid only for the clients they successfully navigate through all of that.

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