Some advisers earning more than $750k per year
Insurance premiums would fall by up to 6% if advisers’ commissions were cut by a quarter, a new report says.
Friday, May 13th 2016, 6:00AM 
9 Comments
by Susan Edmunds
The research from NZIER was discussed by a panel in Auckland yesterday.
The report, Resetting life insurance, said insurers paid average commissions of $221 million per year on new business of $123 million per year over the period from 2012 to 2014.
Cutting the commission costs by 25% would initially cut premiums by 3.5%, which would increase to a saving of 6% over time.
The panel said New Zealand’s insurance industry had a trust problem. This country has the third-lowest life insurance penetration in the OECD and the number of people with life insurance is static.
Panelists pointed the blame at insurance advisers – Retirement Commissioner Diane Maxwell said there was more work to be done to engage the growing number of Maori and Pacific Island consumers.
Other panellists said more work was needed to show people the value of insurance.
But Consumer NZ chief executive Sue Chetwin said more transparency about the industry was not the answer because consumers would not respect many of its practices, such as high upfront commissions and soft commissions.
“We’re talking about educating consumers about life insurance, what would you actually be telling them? Would you tell them that when they are being sold into a life insurance policy that the adviser is likely to be making a 230% commission on it? Are we going to tell them that within a couple of years of that, the insurance adviser will come back to you and sell you up?”
She said the industry needed to rethink its future and tidy up its own house before it focused on other reasons that consumers might not see value in life insurance.
PAA chief executive Rod Severn argued for advisers, saying the “vast majority” of his members had consumers’ best interests at heart.
The report also said just 1.2% of advisers had the top 20% of the annual premium in the market, and the bottom 50% shared 5%. The highest-paid advisers had annual income of $778,000 each.
The report said the highest-earning advisers would be least likely to leave the industry if commissions were tweaked. Those earning the least were likely selling insurance as a secondary source of income and would probably give up if the rules changed.
The calculations were based on Sovereign data.
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Comments from our readers
That same company now charges $425 per year for the same cover. In 1990 I received 150% by way of upfront commission and bonus, total $1,350. I also enjoyed a free office, printed stationary, telephone system, secretarial assistance and a company subsidised mortgage.
Fast forward to 2016 and I now receive 180% if I take the full upfront commission (my actual with this company this year is approx 100%), total $765.
I lease my own office, pay my own staff and all business related expenses.
With regards 'upselling' Sue, are you then saying that a real estate agent who 'upsells' a client after two years that their commission should be reduced?
If a client with a mortgage dies and is not insured it is likely the family would need to sell. The commission they would pay on a $500,000 house would be around $17,000 to $19,000.
I am sure that even if life insurance commission was 230%, i.e a total of $977.50 on the premium above, a client would be much happier to have the cover rather than have the family forced to sell their home. The commission paid is irrelevant.
I was also interested in the panel members who lay the blame on insurance advisers for the low levels of insurance. What about the 'she'll be right' attitude that many Kiwi's have. Many think the Government will take care of them so don't bother to insure.
Finally, I would suggest it would be very unlikely that insurers would reduce premiums if they reduced thier costs of acquisition. They are more likely to use this to increase the quality of benefits so as to attract more new business.
The vitriol of your posts suggest a massive problem with the industry as a whole. In the spirit of a normal response from most industry players how can we help you resolve your issues?
Is is so terrible that an Adviser should be paid for all this work? A commission from the insurance provider is the logical remuneration. There should be no enforced uniformity of commissions: each provider should be able to set their own remuneration structures.
Clearly, the policy owner will through their premiums bear the cost of the adviser's remuneration. If the client does not like the cost which will be reflected in premiums, they can always go elsewhere.
Sadly, there will always be bad apples in the industry. Driving down commissions will not change this - in fact it might increase adviser dishonesty because it will be so hard to make a living. Like a real estate agent, the insurance adviser deserves to be fairly remunerated for the value that they add to their clients.
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