Why New Zealand Life Insurance Industry Statistics Should be Published

Just recently, Good Returns picked up on an item I penned on the above-captioned subject. Subsequently, I met with Peter Neilson, CEO of the Financial Services Council, and discussed the issue in more depth.

I have found conversations with Peter to be helpful, illuminating, and informative, and, as an ex-Board Member of the old ISI, I find his approach constructive, positive, and well thought-out.

Would that there were more such individuals populating other areas of our recently regulated industry!

Peter informed me that, as he suggested in his response in the GR item, the Reserve Bank of New Zealand is in the process of collecting and collating financial and production data from insurance companies for general release and publication.

I believe that this is a positive step in the right direction.

Since the meeting with Peter, I’ve accessed the form that Insurers will be required to complete, and it is extensive, comprehensive, and covers all the angles. In fact, there is so much information to be collated and provided that the suggested time frame of 2 years to first delivery is quite understandable.

However, the scale, scope, and depth of the data, leaves me wondering how the key metrics will be published for stakeholders.

So here’s my rather simple suggestion to what should be made available and how it should be presented.

Company Q1.2015 Q2.215 Q3.2015
ABC $ $ $
DEF $ $ $
GHI $ $ $

There should be 3 separate tables covering -

• New Annual Premium Income (API) per quarter

• In-force Annual Premium Income per quarter

• Percentage Lapses rate per quarter

This information is easily extracted from the existing data provided by members to the FSC, but I believe this should be made available now.

So – I hear you ask – why now and what’s the rush?

Well, there have been assertions made regarding the earnings that financial advisers can secure by providing advice and recommendations to consumers, which may work against the consumers’ best interests.

And unless we can establish a robust methodology for quantifying the extent to which there may be a problem, we may cause untold damage to the very consumers that such advice is seeking to protect.

The Financial Advisers Act Review (FAAR) initiative has already alit upon the availability and accessibility to unbiased advice as an issue for close attention. Undertaking measures that reduce consumer access to advice will only dilute the desired outcome of the review - to provide more New Zealanders with more access to more advice.

This is not in any way, shape, or form, a comment on the commission levels that are present in the NZ market, just as my criticism of the research methodology underlying the Trowbridge Report recommendations was silent on the commission structures.

But before NZ blindly follows the path that the Australian industry seems to be hurtling along, we best make sure that something is broke before we apply a fix.

As the regulatory regime unfolds – as it did in the U.K. and Australia – it becomes evident that regulation can be likened to a doctor prescribing medicinal remedial drugs.

Such prescriptions frequently have side effects, and while the original symptoms may be eliminated by the prescription, the resultant side effects demand further prescription to eliminate the side effects. And so the regulatory handbook keeps on growing in volume and complexity, and with ever more side effects and unintended consequences.

We may be in grave danger of experiencing just such unintended consequences by applying perceived remedial measures for symptoms, the cure for which already exists - without the addition of further remedies with further side effects lying in wait for us.

The Trowbridge Report based its recommendations on statistically insignificant data, and no comment is offered on the rationale for doing so.

Suffice to point out that reviewing 70 files from a potential databank of 3.6million files does not offer any confidence that the provision of inappropriate risk advice is widespread in the Australian risk advice market place.

Nor is there any evidential link to that inappropriate advice being stimulated by the existence of commission remuneration paid to the advisers involved.

In the NZ context, it is likely to that some life companies enjoy new business production growth rates that are above the industry average overall.

The questions then are –

– Where does this growth rate in excess of the industry average come from?

– How much of this excess is replacement business?

If we had access to the figures as per the illustrated spreadsheet, we would at least be able to quantify the scale of the issue.

From that base of robust analysis, we may then look to seek remedy.

Perhaps in the critical exercise, if we discovered how much of the excess production referred to above consisted of inappropriately replaced business, and inquired further about how many replacement applications were rejected by the recipient life companies – and FSC members – we’d make some progress in addressing the issue within the existing framework.

But if we seek to apply remedy to a vaguely defined malaise, we are in danger of moving back to the dark ages when medical practitioners used leeches to relieve all manner of symptoms.

Medicine has progressed since those days and has developed robust diagnostic functions based on validated research and thorough investigation – the NZ industry and the regulators need to adopt the same path, and need to do so before irreparable damage is done to interests of the various stakeholders touched by the current review.