The insurance sector – particularly the life space and insurance brokers – took a hit last week with the Reserve Bank releasing a cynical-sounding analysis of the life sector, and Consumer NZ taking aim at brokers in its annual insurance survey commentary.
Consumer NZ chief executive Sue Chetwin noted some stark statistics, stating that “just 47% of those who bought house insurance from a bank and 51% of those who bought from a broker thought they were getting good service. In comparison, 57% who bought direct from the insurer were happy with the service they received.”
Chetwin noted that the satisfaction difference appeared to be even larger in the life insurance space, and pointed to high commission payments as a likely reason for this dissatisfaction.
Over at the Reserve Bank, financial system analyst Jinny Leong released her ‘overview of the life insurance sector in New Zealand,’ a report which highlighted the high profitability of New Zealand life insurers – higher than the average OECD country – along with its high operating expenses, costs and commission rates. Leong said these factors may indicate “poor value for money,” and expressed concern that the high expenses had the potential to drive up premiums.
“Additionally, high upfront commission rates and policy replacement activity, where policyholders replace an existing policy with a new one during the year, may undermine public confidence in the sector,” Leong noted.
“Consequently, the level of insurance for personal risk may not cover actual financial vulnerability for some individuals in New Zealand, and some individuals may be priced out of the life insurance market altogether.”
Financial Advice New Zealand CEO Katrina Shanks has come out strongly in defence of the broker sector in response to both the report and the comments by Consumer NZ, and stated that high commissions do not necessarily mean a higher than usual cost of distribution. She also stated that Consumer NZ’s comments were highly misleading, and their survey methodology dubious.
“When you look at the percentages, 47% of life insurance is distributed through an intermediated channel,” Shanks told Insurance Business.
“When you look at those charts, it’s roughly a 50:50 split between the direct costs and the intermediated channel. Without it, there would still be a cost of delivering the product – so the commissions don’t mean there would be massive savings if they didn’t use that channel.”
“With Consumer NZ, they’ve made some comments on their survey and made some wide, sweeping and unfair generalisations, and some unjust comments which I personally think don’t really relate to the survey at all,” Shanks explained.
“They refer back to a report from back in 2019, which has since been superseded by cabinet papers and new legislation. There have been changes in legislation and response from the industry since the time it was done, and that makes their commentary a bit misleading.”
Shanks says that when it comes to the survey itself, there are significant flaws in its methodology, questions asked, and the way responses were analysed to produce the ultimate commentary. She says the conclusions drawn by Consumer NZ do not reflect the reality of customer experiences with brokers, as the process has been designed specifically with customer centricity in mind.
“They haven’t surveyed a cross-section of the population, their questions are quite pointed in one direction, and it appears that if you respond below a certain score, you are deferred aside,” Shanks explained. “This raises questions around the results that they get, and the commentary that they’ve added to the survey doesn’t necessarily reflect the questions they asked.”
“One example of a comment from their press release is this – ‘A broker chasing a commission to boost their income is going to do what’s best for them, not what is best for the consumer.’ I don’t think they talked about a broker chasing another commission to boost their income anywhere in the survey, so that’s a very unfair comment.”
Shanks pointed to the process a customer goes through with an insurance adviser, from the initial needs analysis to negotiation with insurers, product advice, and ultimately allowing the customer to decide on their purchase. An adviser’s disclosure statement would reveal their commission, and any potential conflicts of interest.
“It’s a very client-centric process which is set up to get the best outcome for the client, rather than to chase commissions,” Shanks said.
“The comments do not reflect reality, and there’s a disconnect between their commentary and their survey questions.”
“There are a lot of things being put into place which will even further strengthen the financial advice which is given, and will further strengthen public confidence,” she concluded. “We’re trying to mature the conversation around financial health and wellbeing, and these kinds of comments are very unhelpful towards doing that.”