An association, an insurer and FSCL have spoken out after the industry regulator released a new report on life insurance earlier this week.
Financial Services Complaints Limited (FSCL), the Professional Advisers Association (PAA) and leading insurer Partners Life have reacted to a report released by the Financial Markets Authority on Wednesday.
The report into insurance sales and advice highlighted the higher risks of 'churn' associated with replacement business.
FSCL is urging the financial services industry to provide clear and comprehensive advice to consumers about replacement insurance cover.
FSCL chief executive Susan Taylor said it was investigating an increasing number of cases where financial advisers had recommended their client switch insurance provider, and it hadn’t ended well.
“We are working with the FMA to address the potential harms to consumers of insurance ‘churn’ – where an adviser recommends their client change insurer provider, for the adviser’s benefit (more commission), rather than the client’s.”
FSCL was calling for financial advisers to provide clients with a comprehensive written statement when advising on replacement insurance cover, which included:
• the specific reasons for the proposed replacement
• the key differences between the existing policy and the new recommended policy
• the client’s duty of disclosure and the consequences of non-disclosure
• clear and full disclosure of the adviser’s fees or commissions
• how the replacement policy will be implemented.
Taylor said that although the report focused on life insurance, it is likely churn is present across the insurance industry, including for health, disability and protection insurance.
“A typical case is where the client has failed to disclose a pre-existing medical condition for which they had cover with their existing insurer. Unfortunately, the failure to disclose the pre-existing medical condition to the new insurer has resulted in a declined claim some months or years later.”
Taylor said it was a small number of advisers letting the industry down as the majority of financial advisers provide expert and considered advice to their clients.
“It’s important that the industry works as a whole to lift standards, for the benefit of consumers.”
PAA CEO Rod Severn defended advisers, telling the NZ Herald the report showed no specific evidence that advisers were putting themselves ahead of clients.
"The adviser that went on 10 trips over four years - might want to question his ethics but having said that he may have legitimately earned those trips.
"Without actual proof that he moved clients to a different insurer to benefit himself it hard to say what is good, false or indifferent."
"They have missed a major chunk of the industry,” he said, as the report didn’t include the sales practices of advisers employed by banks and insurance companies.
He said many consumers went to their bank expecting to get quality advice and were told to buy the bank's life insurance policy because they were taking out a mortgage.
The report kept its focus on AFAs and RFAs stating there was a higher risk of churn in that group.
"This is because they generally sell more than one brand of life insurance,” said Severn. "Other types of advisers could still be mis-selling but because they only sell one brand, they are unlikely to be churning policies.”
Partners Life founder Naomi Ballantyne said the practice of switching life insurance policies between providers was one of the few areas left needing regulator attention as New Zealand's financial advisers have lifted their game in the last six years since the Financial Advisers Act came into effect in 2010.
“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, saying the standard of advice is now much higher.
The report into insurance sales and advice highlighted the higher risks of 'churn' associated with replacement business.
FSCL is urging the financial services industry to provide clear and comprehensive advice to consumers about replacement insurance cover.
FSCL chief executive Susan Taylor said it was investigating an increasing number of cases where financial advisers had recommended their client switch insurance provider, and it hadn’t ended well.
“We are working with the FMA to address the potential harms to consumers of insurance ‘churn’ – where an adviser recommends their client change insurer provider, for the adviser’s benefit (more commission), rather than the client’s.”
FSCL was calling for financial advisers to provide clients with a comprehensive written statement when advising on replacement insurance cover, which included:
• the specific reasons for the proposed replacement
• the key differences between the existing policy and the new recommended policy
• the client’s duty of disclosure and the consequences of non-disclosure
• clear and full disclosure of the adviser’s fees or commissions
• how the replacement policy will be implemented.
Taylor said that although the report focused on life insurance, it is likely churn is present across the insurance industry, including for health, disability and protection insurance.
“A typical case is where the client has failed to disclose a pre-existing medical condition for which they had cover with their existing insurer. Unfortunately, the failure to disclose the pre-existing medical condition to the new insurer has resulted in a declined claim some months or years later.”
Taylor said it was a small number of advisers letting the industry down as the majority of financial advisers provide expert and considered advice to their clients.
“It’s important that the industry works as a whole to lift standards, for the benefit of consumers.”
PAA CEO Rod Severn defended advisers, telling the NZ Herald the report showed no specific evidence that advisers were putting themselves ahead of clients.
"The adviser that went on 10 trips over four years - might want to question his ethics but having said that he may have legitimately earned those trips.
"Without actual proof that he moved clients to a different insurer to benefit himself it hard to say what is good, false or indifferent."
"They have missed a major chunk of the industry,” he said, as the report didn’t include the sales practices of advisers employed by banks and insurance companies.
He said many consumers went to their bank expecting to get quality advice and were told to buy the bank's life insurance policy because they were taking out a mortgage.
The report kept its focus on AFAs and RFAs stating there was a higher risk of churn in that group.
"This is because they generally sell more than one brand of life insurance,” said Severn. "Other types of advisers could still be mis-selling but because they only sell one brand, they are unlikely to be churning policies.”
Partners Life founder Naomi Ballantyne said the practice of switching life insurance policies between providers was one of the few areas left needing regulator attention as New Zealand's financial advisers have lifted their game in the last six years since the Financial Advisers Act came into effect in 2010.
“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, saying the standard of advice is now much higher.
