In the latest Consumer NZ media release about the insurance sector, I was once again struck by the organisation’s use of opinion in portraying survey findings.
In a media release on January 22 – Consumer NZ reveals best and worst ways to buy insurance – in which Consumer NZ provides comment on survey findings from members, CEO Sue Chetwin states: “Only 28% buying life insurance from a bank and 32% buying from a broker rates the service they received highly. That compared with 47% who bought their cover direct from the insurer.”
Chetwin goes on to say: “In the life insurance industry, brokers’ commissions can be as high as 200% of the customer’s premium. A broker chasing another commission to boost their income is going to do what’s best for them, not what’s best for the consumer.”
In a press statement the following day, Financial Advice NZ hit back against the Consumer NZ statement. Much of Consumer NZ’s commentary appears to be out of date and ignores the considerable progress in both legislation and regulations in the insurance sector, and promotes a negatively biased view of advisers. Industry impact aside, most importantly, this is harmful to consumers whose financial well-being would benefit from access to quality financial advice.
The advice sector plays an incredibly important role in the financial well-being of New Zealanders. Every day, trusted advisers make a real and positive difference in the lives of Kiwis – in helping them make informed decisions for their financial life and needs; decisions that play an important role in both protecting what they have worked so hard for, but also in realising aspirations and goals.
And so, it is vitally important to address this biased commentary from Consumer NZ.
Dissatisfaction ratings
Our concern about the methodology used by Consumer NZ and the results it produces, is perhaps best highlighted by the comparison drawn between the satisfaction levels of consumers who bought their life insurance from an insurer, and those who bought from an adviser.
Detail counts, and this is particularly true of life insurance (life, health, trauma etc) where individual history, circumstances, risks and needs all play a large role in determining the appropriate choice of cover. And it is only when a person gets into the detail, that they understand the pros – and cons – of various products.
That is the role of the adviser: to ensure a client understands all of the detail in order to make an informed choice; the benefits obviously, but also – and importantly – the limitations, such as how exclusions work and pricing applied for higher risk.
Choosing insurance via the advice process involves some challenges for the consumer, and that is as it needs to be. It means spending time, weighing up options; considering risk; asking some hard questions, and having to think about difficult ‘what-ifs’.
The advice process is not an easy click, click, click on a website; rather it is designed to ensure a consumer carefully considers their needs and risks and the protection they would need if life threw a hard-ball.
And through all of this, advice-clients become much better informed of the complexities of insurance, and yes, its downfalls such as complex policy wording, risk-based pricing, exclusions, the risks of non-disclosure, etc.
The more informed consumer is almost certainly going to be more critical having had limitations spelt out. But as we see in this latest Consumer NZ commentary, the organisation has compared apples and oranges, and used statistics without context to deliver their preferred narrative.
Commissions
Insurance commission for advisers appears to have been in Consumer NZ’s cross-hairs for quite some time. The organisation, it seems, refuses to adjust its thinking in light of sector development and the most recent Ministerial statements, changes in policy direction and, of course, the already-in-motion strengthening of adviser and sector regulation to ensure the consumer is always Priority Number One.
In the last year, the commission model has been reviewed by the Minister of Commerce, officials and the sector; it is a viable model that ensures that New Zealanders can access low-cost advice. Sensationalist statements (see above) that present advisers as determined to switch clients at every opportunity for upfront commission are plainly false and, as such, harmful to the consumer.
Furthermore, advisers are aware of issues relating to conflict of interest and the processes and steps required to manage those; there is no evidence that commission adds additional cost to the consumer – it is a distribution cost just like paying salaried employees and other costs to get a product to the market.
Consumer NZ’s commentary on commissions continues to show the organisation’s lack of understanding of how the industry works, but more importantly is harmful to New Zealand consumers.
Poor advice to consumers
A quick note on some of the advice provided by Consumer NZ, which complemented the survey findings. Consumer NZ suggests that on receiving the annual renewal notice, policyholders should “check if you could save by switching companies.”
We completely agree that all insurance should be reviewed regularly. But suggesting that consumers should switch to save money without explaining the potential limitations of replacement cover, is dangerous. Benefits, exclusions, changes in circumstances all need to be considered. Without this, switching may mean saving a few dollars in the short-term, but being severely financially impacted if one of those previously covered what-ifs comes to pass. In short, as any quality adviser would advise, it’s not always a simple apples-with-apples price comparison.
Research methodology
The survey was conducted solely amongst Consumer NZ Members (5,266 completed the annual insurance survey), and the satisfaction figures are based on the percentage who rated their insurer 8,9, or 10 on a scale from 0 (very dissatisfied) to 10 (very satisfied).
A couple of questions we’ll be raising with Consumer NZ as something to consider before the next annual insurance survey lands in members’ inboxes: (1) are Consumer NZ members representative of the many communities in the New Zealand population? And (2) if someone ranks an experience as 7, does that mean they are dissatisfied or something else? The scale in the questionnaire does not indicate to the survey participant.
A few last words
Consumer insights resulting from robust methodologies with agenda-free commentary are an essential tool in highlighting issues so that the sector can continue to embrace consumer driven change. Unfortunately, as this latest commentary from Consumer NZ indicates, the organisation continues to fall short of this, and it is contrary to the best interests of New Zealanders.
