The Reserve Bank of New Zealand (RBNZ) has found life insurers insufficient despite being more profitable than their peers in many developed OECD countries.
The central bank’s latest overview of the sector, written by Jinny Leong and Adrian Allott, found that life insurers have higher costs, are driven by high commission rates, pay out less in claims, and have less solvency capital.
“High expenses have a detrimental impact on premium affordability and value for money for policyholders. Some individuals may be priced out of the life insurance market altogether,” the report said. “They also have high costs relative to their international peers due to high commission rates and relatively high operating expenses. These characteristics may indicate poor value for money for some potential and existing policyholders as high expenses can drive up premiums.
“Additionally, high upfront commission rates and policy replacement activity, where policyholders replace an existing policy with a new one during the year, may undermine public confidence in the sector.”
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The report found that bancassurers were the most profitable with the lowest expenses while those selling directly were the least profitable. However, it noted low gross and net claim ratios, which means “a relatively small proportion of premiums are paid out as claims.”
“A low claim ratio may imply that the life insurance sector as a whole is relatively inefficient in returning money to policyholders and can indicate that insurance products are unsuitable,” the report explained. “[We] found evidence of certain products that provide poor value for policyholders. Some of the indicators of poor value products included low claim ratios, high rates of claims being declined, and limited coverage.”
