tmmonline.nz  |   landlords.co.nz        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Friday, December 6th, 6:21PM

Insurance

rss
Latest Headlines

Reserve Bank flags commission rates, solvency

The Reserve Bank has raised questions about the insurance sector in its latest financial stability report.

Wednesday, November 27th 2019, 9:05PM 1 Comment

The report, released on Wednesday, said that low interest rates could be putting pressure on insurers' solvency buffers.

The Reserve Bank will consider whether there should be a requirement for insurers to have additional solvency buffers when it reviews the Insurance (Prudential Supervision) Act 2010.

Interest rates are near historic lows, and that could be a problem for some insurers, the report said.

It had sought information from 22 life insurers on their sensitivity to interest rate movements and detail of how they were managing the risks.

“Initial analysis shows material impacts on the solvency positions of some New Zealand life insurers. The Reserve Bank is actively discussing the impacts with the most affected insurers and has requested that they prepare plans to mitigate and manage the impacts. The current difficulties highlight the potential need for stronger solvency standards to be incorporated within the supervisory framework.”

The report also reiterated earlier reports' comments on life insurance commission rates being high and potentially problematic for the sector.

“The New Zealand life insurance sector has high commissions relative to other countries, with first-year commissions around 200% of annual premium,” the regulator wrote in its report.

“This adds significant cost to customers, and risk to insurers because the business needs to persist for a number of years before acquisition costs are recovered. If advisers churn their customers from one insurer to another, this crystallises losses to insurers and further increases costs through the payment of another set of commissions by the second insurer.

“High commissions also act as a barrier to new entrants and competition because securing market share requires substantial capital to fund acquisition costs.”

The report said life insurance was about 24% of the insurance market and health insurance 14%.

Within each sector, 50% of premiums and liabilities were with three or fewer insurers.

The Reserve Bank noted the ongoing conduct work in the sector with the Financial Markets Authority and said it "continues to have dialogue" with the sector around raising and improving its level of compliance.

Tags: Commission insurance insurance law insurers Reserve Bank

« Southern Cross's new digital human answers our health insurance questions [GRTV] Ballantyne on conduct and culture; who owns the client; the future of dealer groups and more »

Special Offers

Comments from our readers

On 29 November 2019 at 10:49 pm JPHale said:
Oh FFS! This drum still.. Really. Can we get past the fact commissions are the best option among the crappy options available and get on with it.

Insurance advice businesses don't run on fresh air and nor do client's want to pay fees for something they would rather not talk about. Some do and will granted, but the target majority that need advice and need the coverage won't and don't.

It is not only myopic but roundly tone-deaf to continue this discussion without any constructive suggestions for debate. It is akin to standing on the road tossing rocks at a green house and wondering why the glass breaks.

If Mr Orr is so hell bent against commissions then we need to understand why and he needs to explain himself in ways that are both reasonable and backed by research.

The present approach to the discussion is unproductive and unhelpful. It insinuates issues that have little to no proof of systemic harm, and casts all advisers under a dark cloud created by a minority for the small number of issues discovered.

Frankly it makes the RBNZ sound like a rabid anti-vaxer; there's a problem over there somewhere, I smell smoke but it's not much, so there must be a fire. Rather than the planted reality of a cast off cigarette butt that has little relevance.

The ignorance of the FMA public reports on churn is also astounding, these showed the real problem to be the banks and the VIO’s not advisers. VIO’s aren't driven by commission.

Find another soap box, as this one is destroying any trust or credibility the insurance industry may have in the RBNZ’s ability to understand the insurance industry.

The FMA is demonstrating they are learning, understanding, and engaging. The same cannot be said for the RBNZ.

And no I don't think 200% commissions are reasonable, however, the majority of advisers don't earn 200% commissions, it's not even the rate they have a base access to. Many who are doing the right thing are often paid substantially less than this is the reality, after they take into account existing cover requirements, new cover that is at lower commission rate, and all manner of provider fish hooks that limit commissions when you're doing the right thing for the client.

Manage the behaviour, not the income. We need that to do the job expected. The new rules, managed as they should be, will bring that behaviour change.

Commission and income cuts will reduce sustainability and drive good advisers into different industries. Because it is both costly and financially risky to run an advice business, especially so going into the new regime.

Lastly we haven't seen any commission cut in any market where a sustained reduction in premium was passed on to the consumer. This thinking is wishful thinking against the reality of the world.

Sign In to add your comment

 

print

Printable version  

print

Email to a friend
Insurance Briefs

Apex Advice buys life business
Auckland-based Apex Advice has acquired a well-established insurance advice business.

Chubb's latest champion
Young maths prodigy takes out actuarial award.

New book: Unlocking group insurance
Christchurch adviser Corey Williams has released a new book helping advisers and employers put group insurance schemes in place.

Insurer gets warning from RBNZ
Geneva Finance's insurance subsidiary Quest Insurance been given a warning from the prudential regulator.

News Bites
Latest Comments
  • Advisors must take note of supervisor guidelines on AML/CFT
    “When I read this, the following memory plucked a note. Venue was a US financial planning conference maybe 30 years ago. Speaker...”
    4 hours ago by Murray Weatherston
  • Partners kills its matrix
    “@Backstage, thanks. I agree there is no relationship to CoFI, though, from a service perspective, I have two other providers...”
    3 days ago by JPHale
  • Partners kills its matrix
    “Partners Life has decided to stop using its COM for advisers as it believes the system may breach the CoFI regulations which...”
    3 days ago by Amused
  • Partners kills its matrix
    “Insurance companies should stick to their lane. They are not advisers and even those that employ advisers should not be crossing...”
    3 days ago by Tash
  • [GRTV] The nitty gritty of Smart’s ETFs
    “Advisors should consider all gateways into investment markets including cheaply priced ETFs to provide access to low priced...”
    4 days ago by Pragmatic
Subscribe Now

Cover Notes - Specific news aimed at risk advisers

Previous News
Most Commented On
About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox  |  Disclaimer
 
Site by Web Developer and eyelovedesign.com
x