FSC launches commission investigation

A “mini-Trowbridge Report” has been commissioned by the Financial Services Council, to investigate sales incentives in New Zealand’s personal insurance industry.

Friday, July 24th 2015, 6:00AM 2 Comments

by Susan Edmunds

FSC chief executive Peter Neilson said the report, to be prepared by consulting actuaries Meville Jessup Weaver (MJW), would suggest remedies for any misalignment of incentives between advisers and their clients, that it uncovered.

The insurance industry is in the process of responding to an information request from the Financial Markets Authority, looking at the issue of churn – when policies are switched for the benefit of salespeople, not customers.

Churn, and the role of commission in it, is also being debated as part of the review of the Financial Advisers Act. Submissions to the issues paper for that review closed this week.

Neilson said: “We expect the MJW independent report will identify possible solutions for these issues. The FSC aims to have its own firm recommendations available by the time we submit on the Financial Advisers Act Review proposals later this year.”

He said MJW had been asked to consult widely.

A solution to commission concerns was needed, Neilson said, because New Zealanders were reluctant to pay for advice, roboadvice would likely continue the perception that advice was free, and insurance advisers were working with products that had to be sold, not bought. “Financial planners, advisers and salespeople need to be paid, whether by salary or commission.”

He said New Zealanders were underinsured for life cover and income protection insurance.

“For that reason MJW is already meeting with agent and broker organisations to discuss the issues, options and opportunities. The FSC and its members want solutions that can receive wide buy in from consumers, producers, agents and brokers.”

John Trowbridge, who prepared a report in Australia that led to wide-scale changes to commission structures, will act as an adviser to MJW for the project.

Tags: Commission financial advisers FSC Income Protection Life insurance

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Comments from our readers

On 24 July 2015 at 11:17 am dcwhyte said:

Let's hope that the MJW research is more robust than the research upon which Trowbridge made his recommendations. However, I wouldn't expect the research house to be offering solutions - their function is to identify the issue - if indeed there is an issue - and quantify to what impact this has.

MJW is a respected consulting actuarial firm, and not the provider of qualitative solutions which are, or should be, the domain, of the industry stakeholders involved.

Independent research, by definition, does not seek to confirm or deny a pre-conceived conclusion - it should be requested to identify a) if there is a statistically significant issue to address, i.e. churning; and b) the frequency and quantum involved.

On 27 July 2015 at 1:27 pm RiskAdviser said:

Thanks David, as you have continued to point out, the discussion needs real data to base decisions on. The 'mini' concerns me as the Trowbridge report was short on numbers for the basis of the recommendation, mini suggests less not more robust.

I'm very interested to see the report from an outside perspective.

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