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Consumers shouldn't be kept in the dark about life insurance commissions

On financial news site Good Returns, the head of the PAA is quoted as saying "...we are not convinced that the unique nature of life insurance compensation is fully understood by the ministry".

On the contrary, I think the ministry understands perfectly. I firmly believe that consumers have every right to know how much their financial advisor is paid by the insurance companies.

Why do I feel so strongly? These commissions are built into the cost that the consumers pay for their life insurance – for the life of the policy. Financial Advisors are paid out of the pocket of the insured, not the insurance company. If commissions were lower, then the price of life insurance would be lower for everyone. I also question why the PAA don’t want to disclose commissions. Could it be that commissions in NZ are embarrassingly high? Commissions paid to Financial Advisors in New Zealand are amongst the highest in the world.

What do you think?

Update 28/6/07

Had a few queries since the NZ Herald online featured our post today asking why, as an insurer, I'd criticise the whole commission’s process. Regular readers will know that, unlike the traditional insurers, Pinnacle Life offers life insurance online and direct to the consumer.

Where financial advisers do promote Pinnacle Life products to clients, resulting in a policy being bought, Pinnacle Life offers a one-off referral fee to the referring adviser. But Pinnacle Life's fees are less than half the commission levels paid by the traditional insurers. Let me state that Pinnacle Life is not 'against' insurance advisers. In fact, we have a good relationship with several that refer business to us. But many insurance advisers won't promote Pinnacle Life's products and it's hard not to go past commission levels as a key reason for this. As a result, consumers are missing out on products that are the best price available in the market. Hence, we believe that commission disclosure will provide better transparency, and this will be good for consumers ultimately.

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