The government had considered banning all insurance sales commissions to improve consumer protection. However, it eventually backed out and decided to tweak the ban – disappointing financial service experts.

Instead of banning cash commissions on insurance sales, the government is moving toward just banning volume- or value-based sales targets and introducing a licensing scheme to ensure that financial institutions are treating their customers fairly.

Richard Klipin, chief executive officer of the Financial Services Council (FSC), explained that there are two kinds of commissions.

“There are hard commissions - that is, real dollars - but there are also these things called soft commissions, like a trip to the football, all those kinds of things,” Klipin told Newsroom.

The government will only ban soft commissions but ignored hard commissions despite being considered significant in the industry.

Read more: Faafoi foreshadows conduct licensing regime for financial services industry

Sam Stubbs, managing director of Simplicity NZ, commented that high commissions give financial advisers perverse incentives.

“They encourage the sale of policies which are in many ways providing too much insurance at too high a price for people who either don’t need it or struggle to afford it,” Stubbs told Newsroom.

The government believes that the ban on soft commissions is enough to force “comprehensive and sustained industry changes” – but Stubbs believes otherwise.

“Conceptually, I would ban hard commissions. I have been a long-time advocate of banning commissions. I’ve helped run an insurance company, I’ve seen first-hand the perverse decision-making that it leads to and my conclusion is that hard commissions just don’t work,” Stubbs said.