PartnersLife Insurance managing director Naomi Ballantyne. Photo / Greg Bowker
PartnersLife Insurance managing director Naomi Ballantyne. Photo / Greg Bowker
New Zealand's financial advisers have lifted their game since a new regime came into effect six years ago, leaving the practice of switching life insurance policies between providers as one of the last holes left for the regulator to plug, Partners Life founder Naomi Ballantyne says.
The adviser regime is currently under review, with Commerce Minister Paul Goldsmith set to receive a final report next month.
Partners Life's Ballantyne says replacement life insurance needs its own regulation because of the risk that customers lose existing terms and conditions and also the temptation for advisers to recommend switching, or churn, where there is no clear benefit because the commissions involved "can incentivise bad behaviour".
Requiring advisers to identify the risks associated with switching policies so customers can make an informed decision would mitigate that, she said.
"This is the last piece really that's still a significant outlier in the sense that there's no real process in place," Ballantyne told BusinessDesk.
The Financial Markets Authority yesterday released a report into life insurance sales, with a focus on replacement business which it said held a higher risk of churn.
The report found 200 advisers with what it deemed to be a high level of replacement business, earning significantly higher commissions than other advisers with a lot of active life policies on their books. The regulator said it would be taking a closer look at those with the highest volumes of replacement business.
Ballantyne said the FMA report was better than other attempts to identify problems in the market, rightly focusing on replacement business and the risks posed to customers rather than criticising all use of commissions and all advisers.
In a statement, Sovereign Assurance chief executive Nick Stanhope said replacement insurance was useful when it led to better outcomes for the customer, but "more accountability around moving customers between companies to earn additional commission is an effective way to address concerns around churn."
Separately, Suncorp New Zealand, which includes the Asteron Life brand, said it supports reasonable compensation for advisers, but was against switching policies when it wasn't in a customer's best interest.
The standard of advice is much higher because they now, to a man, follow a process in terms of the new business sale.
Partners Life's Ballantyne says advisers have lifted their game since the Financial Advisers Act came into effect in 2010, which had helped drive out advisers who chased commissions above all else in "the bad old days".
"There are the rare occasions where that happens now, but nothing like it used to be," Ballantyne said. "The standard of advice is much higher because they now, to a man, follow a process in terms of the new business sale."
That's lifted the quality of advice for customers, which in turn has led to an increase in the value of business being sold because clients have a better understanding of the products, she said.
If there's churn happening in the adviser side, you can bet it's happening in direct channels as well.
The FMA review focused on advisers rather than banks and direct sales by insurers, saying they had a higher risk of churn because they sold more than one brand of insurance.
Ballantyne said qualifying financial entities, such as banks or fund managers, were just as likely to write replacement business with their staff encouraged to get customers to switch policies held with rivals.
Adviser organisations - the Professional Advisers Association and the Institute of Financial Advisers - also see the level of business written through direct channels such as banks as too big to ignore simply because of the FMA's perceptions about adviser risk.
Still, they both see the report as a good first step to understanding the issue, although it's too early to say definitively whether the advisers with large volumes of replacement business are churning customers or are simply good at their jobs.
"If there's churn happening in the adviser side, you can bet it's happening in direct channels as well," PAA chief executive Rod Severn said.
