Choosing the best of the best for you

Is the insurance industry bad news? Plus4 responds

It has been an interesting week for the insurance industry with the release of the Life Insurer Conduct and Culture report by the Financial Markets Authority New Zealand and the Reserve Bank of New Zealand.

The report feeds back to the market both positive and negative findings. We welcome this report and are glad that it brings greater transparency to the industry. While we recognise that the insurance sector isn’t perfect and there is progress yet to be made, we believe the media coverage of this report has been largely (and unfortunately typically) one-sided. The media coverage about the report paints an unbalanced picture of the industry we are passionate about and proud of.

At Plus4 we absolutely believe that poor conduct in the industry should be called out, and that there is a small minority of bad players that tarnish the good work of our advisors and the majority of our peers. New Zealand already has an under-insurance problem and uncertainty from consumers about why obtaining the correct insurance is important, and we have concerns about the damage that irresponsible media reporting on this report could do.

We would like to take this opportunity to answer some of the coverage of the report, reassure our clients that they are in safe hands with Plus4, and outline some ways in which all consumers can make good decisions when buying insurance.

The difference between advisers and providers

The report was tasked with looking at the conduct and culture of the insurance industry, in particular that of life insurance providers.

It is important to understand that while advisers work closely with a range of different providers and sell their products, we are not insurance providers. There is an important distinction between the two.

Insurance providers sell to consumers in three different ways:

1. There are those that only sell directly to consumers (often through call centres or over the internet) without meeting with clients. This includes banks that sell insurance. The challenge for consumers buying insurance directly is that it is very hard to compare the wording in different policies to know if you are getting value for money and what exactly you are covered for. There is also little if any ongoing support and contact.
2. Then, there are providers that do both – they sell directly to consumers, but also sell their products through advisers.
3. Lastly, there are providers that sell only through advisers.

The report reviewed 16 life insurance providers in New Zealand, including some that sell directly to consumers, others that sell through advisers, and those that do both.

Insurance advisers, like Plus4, work with many different providers to find the best product for you and our other clients. At Plus4, we even use independent research to make sure the providers and products we work with are the best available. Providers (including banks) that sell directly to consumers are able to avoid this level of scrutiny.

Commissions and incentives

One of the points of concern raised in the report and amplified by the media was around commissions (paid to advisers when they sell a provider’s product), incentives and rewards. Insurance is a sales-based industry and as such has historically been incentivised.

In particular, the report was concerned about advisers being financially motivated to choose a product for a client based on the commission or incentive they could receive, not on the merits of the product, and whether these commissions were disclosed to clients.

It’s important to note that:

• Commissions are paid for by the insurance provider, not you as the consumer. These commissions ensure we can continue to supply you with high-quality insurance advice without having to charge large fees to cover the extensive time involved. This helps keep quality insurance advice in NZ easily accessible and affordable for consumers to engage in.

• Our advisers disclose any commissions in the disclosure documents we provide you. This isn’t required by law yet, but at Plus4 we believe that this level of transparency is important.

• When we recommend a product to you, we write a report outlining why we have chosen that policy. We must justify why this is the best product for your unique circumstances, and that has to have a basis in the technical wording of a product. This process means our advisers will naturally recommend different products to different clients, depending on their specific needs.

• All the insurance providers we work with provide very similar commissions and incentives – this means they are unlikely to influence our behaviour at all.

• The commission we are paid by the insurance provider isn’t charged to you – if you were to buy the exact same product directly from the provider, or through our advisers, your premiums would be the same.

• Commissions are paid up front, but this payment also helps pay for future service, such as regular reviews, claims assistance, administrational updates and so on for years into the future– at no cost to the consumer. This is our service commitment to you.

We believe all New Zealanders should be able to seek high quality advice on insurance – it is an important purchase and getting it wrong can cost you when you need it most.

We also believe that insurance advisers deserve to make a living, like anyone else. Individual advisers take on significant financial risk with the advice they give, and are on call for their clients – we promise to be there and be available for our clients when they need us.

Beyond best practice

The law around disclosure can be loose, however there are industry best-practice standards that most of the industry follows. At Plus4 we have committed to a standard that is much higher than that required by law.

Our partners are held to that standard and any adviser that breaches our standards would be asked to leave the group.

How can consumers feel safe when buying insurance?

It is only natural that when a report like this comes out, or the insurance industry get bad press, that people wonder how to protect themselves. Insurance can be a significant expense, and isn’t something anyone enjoys buying. Here are some ideas on making sure you get the most out of it.

• Don’t buy direct: We strongly recommend buying insurance though an adviser, not directly from the provider. Non-aligned advisers (advisers who are not connected to an insurance provider) should be comparing a range of policies across providers to find the one that best suits your needs. If a provider doesn’t sell through an adviser, you should ask yourself why.

• Cheaper isn’t better: If you are saving money buying directly because it is cheaper, it may cost you significantly down the line, through non-standard clauses, poor wording, poor payment history or a lack of ongoing support.

• What you need to know about advisers: Not all advisers are equal so do some basic research first. Key things to look out for include:
  • Do they belong to a group? If your adviser belongs to a group it is likely there are standards above those required by law that they must adhere to, and there is a higher level of oversight that they are meeting those standards.
  • What is the process they use to choose policies? They should follow a robust process (which they can explain to you clearly), and be able to substantiate and justify why they recommend a certain provider or cover.
  • Do they encourage regular reviews? Regularly reviewing your policies is a critical part of saving you money, making sure your chosen policies continue to meet your needs as your life changes, and making sure you have claimed on any claimable events.

If your adviser follows these steps you can rest assured, you have a good adviser.

If you want to talk to any of our Plus4 team, want to make sure your insurance is up to date, or have concerns about your current insurance, please call us.