Risk poor policy analysis could affect commission decisions

When added to the MJW report, and the RBNZ FAA submission, there is a trend developing of reports recommending commission reductions, which could impact on official policy. It is vital that these reports use quality analysis otherwise policy changes could be inappropriately based.

The NZIER report has some good aspects but it suffers from major weaknesses.

Changes in Level of Insurance Cover
NZIER use annual increases and decreases in gross premium data, as well as data on numbers of covers in place, to argue that the NZ personal insurance market is flattening out. Unfortunately, it does not break this data down into categories like permanent life, term life, income insurance, trauma, etc. In general, it is difficult to argue from gross figures that NZ is underinsured, because people only need as much personal risk cover as the present value of their future needs indicate.

In a stagnant society, people whose risk needs are increasing will be balanced by people whose risk needs are decreasing, so it is only the factors which cause dynamicism in society which cause changes either in sums or in policy numbers.
The FSC/Massey Exploring Underinsurance report found that NZ had adequate cover levels of life insurance, though the amounts were not correlated with actual need. NZ’s problem was income, trauma and TPD, insurance cover. NZIER did not do this breakdown.