RBNZ highlights exorbitant life insurance commissions
The Reserve Bank is sending a strong signal to the life insurance industry that broker commissions are way out of whack with international comparisons.
The central bank’s latest six-monthly Financial Stability Report contains a chart showing that commissions on life insurance policies in New Zealand are a whopping 20.4 percent of gross premium revenue.
The country charging the next highest commissions is Mexico at a much lower 12.8 percent. Countries New Zealand would prefer to be compared with range from Denmark at just 0.2 percent, Germany at 6 percent, the United States at 6.6 percent and Australia at 9.2 percent.
“It’s an exciting chart,” Reserve Bank governor Adrian Orr told journalists at the media briefing on the latest report.
“We put it there specifically because sunlight is a good disinfectant,” Orr said.
“We can’t micro-manage this industry but it has some real specific issues.”
Another problem in the life insurance industry the Financial Markets Authority has been targeting is the practice of agents churning clients from one policy to another just to generate additional commissions and often to the detriment of the client.
An FMA study of 11 life insurance companies published in July found only about 2 percent of sales of life and other related policies are actually new and that the rest are simply replacing existing policies.
The central bank and the Financial Markets Authority are set to report on their review of the insurance sector’s conduct and culture in January.