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FMA eyes high-volume insurance advisers

NZ NewswireNZ Newswire 29/06/2016 Paul McBeth

The Financial Markets Authority is keeping a close watch on the small group of financial advisers selling large volumes of replacement life insurance, which could be driving up the cost for consumers.

The FMA sought four years of data from New Zealand's 12 main insurance providers spanning April 2011 to March 2015 to inform a report released on Wednesday.

The market watchdog found 1100 "high volume" advisers with more than 100 active life insurance policies on their books, and of those, 200 advisers were deemed to have a high level of replacement life insurance business - when an existing policy is switched for another.

They earned almost 50 per cent more from commissions on life insurance than other high volume advisers.

The majority of New Zealand's 8200 financial advisers don't have high levels of replacement business and the regulator will be putting those with the highest volumes under the microscope, says FMA director of regulation Liam Mason.

"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," he said.

"FMA staff will be taking a closer look at the conduct of those advisers with the highest volumes of replacement business as the next stage of this work."

The FMA's first report into life insurance and sales also said there's a higher risk of customer 'churn' with no clear benefit to the customers.

"Of wider concern is the possibility that New Zealanders are paying too much for life insurance, because insurance providers are spending too much on commissions to advisers due to churn," the report said.

Last year one report calculated life insurers were spending around $430 million a year on commissions and if that were halved premiums could be cut by up to 12 per cent.

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