Cut insurance costs with KiwiSaver
New Zealanders could slash their life insurance premiums by up to 75% if they were able to access cover via their KiwiSaver accounts, the chief executive of a transtasman advice firm says.
Thursday, November 13th 2014, 6:00AM 
4 Comments
by Susan Edmunds
Allan Rickerby, of Super Advice Services, has offices in Australia and New Zealand. It specialises in KiwiSaver for workplaces, employee group insurances and group private health.
He said Kiwi consumers were missing out because they were not able to hold insurance inside their KiwiSaver accounts and access the cheaper advice group cover structures would provide.
Commission levels being paid to insurance advisers were obscene, he said.
New Zealand regulators and lawmakers had looked to Australia’s experience in crafting aspects of KiwiSaver and they should do the same when it came to insurance.
“It may be time to copy some of the things that have happened there to provide consumers potentially lower premiums for their life cover,” he said.
If people were able to hold life cover within their KiwiSaver accounts, they could cut their insurance costs down to a quarter of what they paid currently, he said.
His firm would make 10% to 20% brokerage per customer set up with a group cover scheme in Australia, compared to the up to 230 per cent upfront commissions paid to insurance advisers in New Zealand. “In Australia you can have $500,000 of cover for a 40-year-old for $250 a year, compared to about $1000 on an individual basis.”
Grosvenor offers small amounts of cover via KiwiSaver but Rickerby said it should be regulated on a larger scale.
“It’s a Government issue. They haven’t opened it but it is something worth looking into. We’re an advocate for change.”
Rickerby said Australia also had a higher standard of licensing for advisers that New Zealand would do well to emulate. “The level is extremely low here, you just have to register.”
He called for New Zealand to step up to the standard of Australia’s rules requiring disclosure of commissions and soft dollar incentives, too.
While authorised financial advisers in New Zealand are bound by rules relating to conflicts of interest and disclosure of fees, registered financial advisers are not. “230% is obscene. If you put that in front of a client and fully disclosed it, and told them you’re making $5000, they’re going to ask whether there’s a better way.”
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Rickerby is disingenuously comparing apples with oranges. Group brokerage rates in New Zealand are also 10% to 20% of the annual premium, but the difference is that that amount gets paid every year.
The 200% to 230% commission rate on individual business is paid in year one only. Agents have a choice about that too, and instead of taking that rate they can choose a rate of 20% which is also payable every year. So that rate is identical to the group insurance rate of 20%.
In the long run there is no material difference.
On the matter of Australian premium rates, I can't resist noting that every time one of our major groups has compared New Zealand group insurance rates with Australian group insurance rates, they have, 100% of the time, stayed with the New Zealand rates.
It's the Australian rates which lack competitiveness, not ours.
The actual distribution cost of the product is I believe more like 30% (the commissions). So the only way to make it cheaper further is to "make it cheaper". Remove the airbags (special event increases), cheaper tires (throw in some exclusions) and hey forget about brakes (have it expire at 65).
I slipped into the car analogy here as Tata India released a nice cheap car the Tata Nano (USD$2k), maybe someone should import them to New Zealand as obviously using Allan’s logic we are being ripped by the Japanese, bloody car dealers, as bad as RFAs.
Unfortunately we have all seen some of the cheap and nasty variants of group insurance, it is clearly better than nothing but not what you would buy yourself. The real issue often is it distracts people into believing they actually have cover that’s going to do what they expect and they don’t do anything else themselves.
Why not suggest the Government provide free life insurance to everyone (ACC covers accidents), perhaps a multiple of their tax paid household income, no commissions just a bit more tax. This would be by far the most cost effective way of insuring everyone has the basics covered, really everyone should have something and if it’s some limited cover with KiwiSaver so be it.
The actual cost of distribution has little to do with the real cost in a retail market, be it “obscene up fronts” or “sneaky” level commissions (far more money long-term), it’s actually about big numbers, removing costs, like underwriting, no advise and anti-selection protection. Sure it doesn't have to be nasty to be in bulk, but we need to be really clear on everyone’s agendas.
The access “cheaper advise” Allan refers to also includes the up-selling of other products to those in group schemes paid at often normal commission rates, I think most advisers know, group schemes can be cash cows and KiwiSaver just makes them bigger.
There is already NZders who are suspicious of KiwiSaver - adding insurance to the product would not help to reassure them.
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What I do find obscene is the scare mongering antics of some commentator's, such as is the case here.
"New Zelanders could slash their life insurance premiums by up to 75%" This makes for good headlines but let's look at the facts.
Firstly, if the figures Allan quotes for $500,000 cover for a 40 yr old in Australia are correct, Australian insurance companies are making a killing. In New Zealand, the same cover through an adviser costs less than $500.
Secondly, if the client was paying a premium of $1,000, the 230% commission payable would be $2,300, not $5,000.
Let's say for argument sake it was $2,300 and compare this to the commission a widow would pay if, instead of receiving a $500,000 insurance payout, she had to sell a property to release capital to live on.
Even selling through a company charging at the lower end of the commission scale (2.95% 1st $300,000 and 2% on the balance) the widow would pay $12,850 + GST in commission. On top of that would be advertising costs.
We are a nation with a high level of under insurance. The inclusion of life cover in KiwiSaver accounts would go some way to solving this but we shouldn't start the discussion with inflated and emotive comments.