By Jenny Ruth
March 5 (BusinessDesk) - Partners Life has launched an advertising campaign aimed at getting New Zealanders to think about whether they need life insurance.
That’s at a time when the life insurance industry is in the midst of a regulatory stoush that has called into question the extent of fees paid agents and the high rate of churn – agents persuading people to switch from one policy to another.
Partners Life managing director Naomi Ballantyne says her company started developing the campaign 15 months ago, long before the Financial Markets Authority and the Reserve Bank launched their joint investigation of the industry in mid-2018 in the wake of the scandals being revealed by Australia’s royal commission into financial services.
Their scathing report delivered in January unveiled a litany of shortcomings ranging from over-charging, selling policies for cover that could never be claimed and failing to fix such problems to selling credit insurance to customers who were potentially ineligible and continuing to charge premiums on policies that had been cancelled.
Each of the 16 companies covered by the investigation have been sent letters – Partners Life received its letter last week – detailing any shortcomings and requiring the companies to report back to the two regulators by June 30.
“Once we realised the timing of the report, we took a breath and asked ourselves, how does this play out?” Ballantyne says.
But the aim of the campaign is to try to persuade New Zealanders that they need to consider whether they need to insure their lives or health.
“All of this is something the FMA and RBNZ both want,” she says, adding that the campaign isn’t designed to sell to people directly but to raise awareness.
All Partners Life’s business comes through independent agents so, if the campaign does succeed in stirring consumers to action, Partners Life will be referring them to independent insurance agents who may or may not recommend Partners Life policies, Ballantyne says.
The policies sold by insurance agents is a part of the industry the regulators are particularly targeting.
The Reserve Bank has said that insurance brokers’ commissions are way out of whack with international comparisons.
It says commissions in New Zealand amount to about 25 percent of total premiums paid each year, far higher than in other countries – Mexico and Hungary are the next highest at about 15 percent with Australia at about 12 percent and the United States about 9 percent.
Up front commissions on new policies can range from about 170-210 percent of the first year’s premiums.
A previous FMA study concluded that only 2 percent of sales of life insurance policies are genuinely new, rather than just churn, or switching customers between policies to generate income for life insurance agents.
Partners Life, founded in 2011, is the third start-up life insurer Ballantyne has been involved in – she began her career at Sovereign as a founding employee in 1989, and then moved on to ING, since renamed OnePath and founded its life insurance business.
Ballantyne says the regulators want life insurance providers such as Partners Life to have greater oversight of the advice its customers receive which is going to be a challenge.
“If it’s independent advice, the provider doesn’t get introduced to the customer until the very end of the process,” she says. Until then, an independent agent won’t know which policy and which provider will be best suited to their customers’ needs.
Partners Life sets no quotas for the amount of business agents have to refer to it: “They don’t have to sell us, we have to earn it,” she says.
Ballantyne takes issue with the regulators’ findings. She says she doesn’t know where the FMA’s 2 percent estimate comes from, unless it’s derived from a measure of the industry’s growth.
“I’ve never in my entire career seen a figure of 2 percent,” she says.
Partners Life asks both agents and their customers whether policies they’re signing up for are new or replacement business and provides incentives to try to ensure they answer that question.
From that, the company estimates about 40 percent of the new policies it sells are replacing existing policies but 60 percent are new, Ballantyne says.
Ballantyne also takes issue with the Reserve Bank’s international comparisons of commissions, particularly that it failed to include Japan, South Africa and Britain, countries with life insurance industries structured similarly to New Zealand’s.
“For countries where there’s a direct model and not much advice, you will get a totally different” reading, she says. The Reserve Bank’s figures didn’t take in the cost of advertising and staff salaries that companies using a direct model incur.
Ballantyne says it’s obvious that New Zealanders do need to become more financially literate and attributes the nation’s “she’ll be right” attitude to life insurance as a hangover from the welfare state.
“New Zealanders still think they live in a social welfare state so the government will take care of them” through institutions such as ACC.
But District Health Board statistics show only 11 percent of hospital admissions are due to accidents and the vast majority are due to illness.
And OECD figures show New Zealand rates the second lowest for the rate of insurance coverage.