On the weekend I got to read the ‘Review of Retail Life Insurance Advice’ report prepared for the Financial Services Council (FSC). Prepared by MJW, the report does not, in my opinion, meet the goal of reviewing the conflicts of interest in the sale of life insurance across channels.
Like AIA, Asteron Life, and Partners Life, and the PAA, I feel that the report does not present a balanced view. It seems a decision was taken early in the development of the report to focus on one aspect of one channel: commission paid to RFAs. Average commissions are, in fact, substantially lower than the example given, when you look at it top–down from company accounts or bottom up from the mix of business advisers actually sell. That selection means the higher margins in vertically integrated channels which must logically also be a conflict, were ignored, for reasons unexplained.
I was disappointed that a report which is supposed to review advice shared no data or discussion on what constitutes good advice or bad. A comparison of premiums and policy features between commission-bearing channels and those that pay no commission would have been a useful test of whether commission-paid advisers add value. Such a comparison would show that advisers do add value.
Likewise absent was any example of actual customer harm. The report also ignores problems which have been identified around customer confusion over labels. Others have already labelled this single focus as bias. It also appears contrary to the idea of being ‘customer-centric.’ A comparison like this would focus us on exactly what kinds of switching needs to be regulated.
The report focuses on one piece of data: switching rates. In passing it notes that not all switching is bad, but doesn’t offer any definition of a ‘good switch’ or a ‘bad switch’. Many switches help customers save money or get better policies.
Evidence which could have been included on a comparison of channels was either not considered, or left out. These gaps make it difficult to do any cost/benefit assessment of the recommendations.
I like Rod Severn’s comments from the PAA:
“Some good recommendations, but let down by unbalanced view of replacement business and the value of advice.”
Like Rod, I agree with some of the recommendations. Here’s your digest of links to commentary on the report:
Goodreturns “Philip Macalister scores the report a ‘D’
Goodreturns: ‘the report that tore the FSC apart’
Also goodreturns: ‘Report slams life insurance conflicts of interest’
Another goodreturns ‘Advisers replacing policies are doing their jobs’
All by Susan Edmunds
The New Zealand Herald: ‘Conflicts of interest shown in insurance commission report’ by Tamsyn Parker
Investment News New Zealand: ‘Seven Ways to Improve Life’ by David Chaplin
The PAA Response, and their table of commentary on the actual recommendations.