Insurance reform on the horizon

by Will Ashworth25 Nov 2015
The Australian government recently tabled legislation lowering the upfront commissions insurance advisors receive, putting it further down the road to financial reform. But its neighbour across the Tasman Sea is standing firm providing New Zealand advisors with the kind of compensation Canadian advisors can only dream of.  
 
At least for the time being that is.
 
New Zealand’s Financial Services Commission hired authors Mark Weaver and David Chamberlain to research and review the state of retail life insurance in the country. Its findings highlight a need for reform similar to what’s currently underway in Australia.
 
For instance, Australian advisors currently can earn up to 120% in upfront commissions but will see that drop to a maximum of 60% by July 2018. In contrast, New Zealand advisors can make as much as 200% in upfront commissions. In addition, advisors in the home of the All Blacks can earn up to 10% annually thereafter, a volume bonus of up to 30% when meeting certain sales targets and soft incentives such as international holidays for outstanding performance.
 
“Financial advisers have a large financial incentive to write life insurance policies,” the authors found. “This creates a material conflict of interest for financial advisers and we believe is a significant contributing factor to the high levels of replacement business being written by financial advisers (almost half of all business written by them).”
 
Like the Trowbridge report in Australia, this report is likely to push New Zealand’s legislators to take action, and much like what’s happened in Australia, lead to sweeping changes in the compensation of advisors.
 
“This situation is extreme,” the report concluded. “While the rewarding of advisers by initial commissions exceeding one year’s premium is not uncommon in other countries, the New Zealand level, at two times and more, is not only out of line internationally but it also generates inappropriate incentives for advisers and has profound implications for the structure and operation of the life insurance industry in New Zealand.”
 
Should Canadian advisors be worried? Perhaps, but for now you can look to New Zealand as the big global outlier when it comes to insurance commissions.

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