Financial Services Council launches its own investigation into churn
The Financial Services Council, the industry-led lobby group, has commissioned a report into sales incentives in the personal insurance industry following concerns about unnecessary policy switching.
The Auckland-based group has hired consulting actuaries Melville Jessup Weaver to investigate industry "churn," where a policy is switched to the benefit of a salesperson but not the customer, some of whom may even lose coverage for a pre-existing condition, the council said in a statement. The report will "suggest remedies for any misalignment of incentives between salespeople and their clients."
"The products the industry sells address issues like premature death and unexpected serious illness that prevents earning and income, issues that most people would prefer not to talk about," FSC chief executive Peter Neilson said. "As those products are sold, not bought, the industry mainly relies on an agency and broker distribution channel."
MJW will be advised by John Trowbridge, a former member of the Australian Prudential Regulation Authority who chaired an independent report into the life sector across the Tasman. Trowbridge has been calling for reform of Australia's life insurance sector and, in particular, the adviser's commission on products sold, but has said sector reform must be wider than a single focus.
The New Zealand industry-based investigation comes after the Financial Markets Authority requested information under section 25 of the FMA Act from the main life insurance providers. The data spanning a four-year period relates to life insurance including total and permanent disability insurance and income protection. The request included premiums and policies sold and cancelled and commissions paid by providers, spokesman Andrew Park said.
"Our review is still in very early stages," Park said in an emailed statement. "The FMA welcomes the focus the industry is placing on discovering more about the issue."
The market watchdog identified the sales and advice practices around life insurance as a key focus area in its Strategic Risk Outlook in December.