Almost a year since releasing a report on ‘churn’ in the life insurance industry, the Financial Markets Authority (FMA) is still hauling in targeted advisers for further questioning.
In the June 2016 ‘Replacing life insurance – who benefits?’ report, the FMA identified about 200 advisers with “high replacement” records who were deemed “most likely to have the largest number of consumers whose policies have been churned”.
“In 2014, these advisers had 65,000 active life policies between them, paying around $110 million in annual premiums,” the June 2016 report says. “We acknowledge that some may be doing a great job for consumers, and it is possible only a small proportion may be churning policies.”
At the time, Liam Mason, FMA director of regulation, said the regulator would be “taking a closer look at the conduct” of the subset of high-replacement advisers.
“We will be examining the basis on which policies have been switched or replaced and the drivers for that activity – with a particular reference to incentives (of whatever form) provided by insurance providers,” Mason said last June.
After issuing a ‘section 25’ notice to the initial high-risk group of advisers last August, the FMA sent out a follow-up demand in November for more detailed information.
The August FMA letter sought broad information on adviser businesses such as a list of insurers they dealt with and a “list of all your clients that have moved their life, health or income protection insurance policies… since January 2012”.
It is understood the November ‘section 25’ notice – which refers to the section of the FMA legislation empowering the regulator to demand certain information from its regulatees – was issued to a winnowed-down version of the 200 or so advisers on the original target list. The November notice sought copies of the full file advisers held on specific named clients.
Following this second round of data collection the FMA has been conducting interviews with earmarked advisers: however, the regulator declined to reveal how many advisers were lined up for face-to-face talks nor when the process was scheduled for completion.
In a statement, the FMA said: “The initial information-gathering as part of the review of insurance replacement business has raised concerns about the conduct of some advisers that has required further inquiries. This is progressing and we are following up with the individuals concerned.”
It is understood, the data collection has been hampered in some instances by poor adviser record-keeping: under the current law registered financial advisers, who write the bulk of life business, have no obligation to keep accurate records of all client interactions.
Mason said last June the FMA report, based on a year-long collection and analysis of data from 12 NZ insurance companies, found 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”.
The FMA report cites data showing life insurers spend about $430 million in commission each year with about $110 million of that accruing to the roughly 200 ‘high replacement’ group.
During the four-year period under scrutiny in the June 2016 study, the FMA accounted for 1,767 insurer-rewarded adviser trips spread across 40 different overseas insurance company events.