Stop the ‘churn’: FMA
The Financial Markets Authority (FMA) is calling for cooperation from the life insurance industry and financial advisers to address the potential harms to consumers from the relatively high levels of switching of existing insurance policies.
The FMA released its first report into sales practices within the life insurance industry. The report shows that of the USD1.7 billion New Zealanders spent on annual life insurance premiums in the year to 30 June 2014, a significant number of existing policyholders were switched between providers. This switching activity is called ‘replacement business.’
The report uses extensive data from 12 life insurance providers, gathered and analysed over the past 12 months. It focuses on replacement business sold through either authorised or registered financial advisers (AFAs and RFAs, respectively).
The FMA report reflects that current remuneration structures used by the insurance providers present the risk of conflicts of interests that may harm consumers and could negatively affect the overall price, and therefore accessibility, of life insurance to New Zealanders.
The FMA’s director of Regulation, Liam Mason, said, “We saw that the majority of advisers do not have high levels of replacement business, regardless of the way they are paid for their services. However, there is a clear link between high rates of replacement business in certain areas and high up-front commissions, or incentives for high sales volumes, such as overseas trips laid on by providers.”
The data compiled and the analysis undertaken has enabled the FMA to discuss these issues with providers and advisers.
“As a conduct regulator, our focus across the entire financial services industry is to ensure that customers’ interests are always at the centre of a business operation. So we will be paying particularly close attention to the behaviour of insurance advisers where it is unclear that the appropriate care, diligence and skill are being provided to their customers,” Mason said.
The findings from the report have been provided to the Ministry of Business, Innovation and Employment to consider as part of its review of the Financial Advisers Act.
