The Reserve Bank of New Zealand (RBNZ) released a report "An overview of the life insurance sector in New Zealand" a few short days ago. Since then, local media has picked up on the mostly unflattering findings and unleashed it on mainstream news.
The RBNZ's report highlighted that life insurance companies in New Zealand are:
more profitable;
less efficient; and
pay out fewer claims
than most of the other life insurance companies in the OECD. Not a good look for the New Zealand life insurance industry.
For Kiwi consumers, it suggests we pay more and get less in value when it comes to our life insurance.
The report also found comparatively high level of policy replacement activity (i.e. existing policies being replaced as opposed to new sign ups) and high upfront commission rates being paid to advisers. This seems to point to New Zealand life insurance companies under-performing and not behaving as well as their peers in the OECD countries.
Like many Kiwis reading this, you will feel disgruntled at the thought that your premiums are expensive and constantly increasing because of insurers' inefficiencies and lack of positive action in the industry. It is then not hard to see why the report had highlighted that life insurance is not widely popular in New Zealand as compared to other OECD countries, with Kiwis ranking near the bottom, behind the Czech Republic and just in front of Mexico (based on 2017 RBNZ QIS data).
The RBNZ's torch has been turned towards the New Zealand life insurance industry; uncovering its skeletons. The findings are disappointing, but perhaps unsurprising for most that are used to damning articles on the industry in the news from time to time. An easy target some, especially industry insiders, will say.
The Australian Royal Commission in 2019 which looked into financial services including insurance, has sent jolts all the way over across the Tasman and the impact of the aftershocks are starting to show in the more public observations of cracks in our industry and incoming action from our regulators to enforce better behaviour across the board.
Perhaps 2020 will be the turning point for an important industry in our nation. One meant to support our fellow Kiwis in unexpected hard times when bad things happen.
In the next post, we'll explore what Kiwis can do to regain some power and level the playing fields to shape the insurance industry for the better starting in 2020.
