Probe into insurance ‘churning’

THE lobby group for insurers has launched a probe into insurance commissions to work out if they are skewing advice, and if so, what can be done about it.

The Financial Services Council (FSC) has hired actuaries Melville Jessup Weaver to investigate sales ‘‘incentives’’ paid by insurers to insurance advisers, and to suggest ‘‘remedies for any misalignment of incentives between salespeople and their clients’’.

There has long been a concern that some insurance advisers have been ‘‘churning’’, or moving, their clients policies periodically from one insurer to another to earn new commissions.

This could result in consumers paying too much for life insurance, and other types of policies like trauma, income protection and disability cover.

Each time a ‘‘new’’ life insurance policy is written, advisers can earn an upfront commission of up to, and sometimes higher than 200 per cent of the first year’s premium.

FSC’s move has been prompted by the regulator, the Financial Markets Authority (FMA), which is trying to work out whether the New Zealand insurance industry has a churn problem, and whether it needs to take action to protect the public.

The regulator has issued aninformation request to the main life insurance providers as part of an ‘‘exploratory project into insurance churn and replacement’’.

It has asked for data over a four-year period, including premiums and policies sold and cancelled, and commissions paid by providers to advisers.

‘‘Once we have completed our review we will be contacting providers directly, and this will inform the FMA’s future monitoring activities of all sides of the life insurance supply chain,’’ an FMA spokesman said. ‘‘There is no timeline scheduled for this project until we have received and reviewed the data.’’