Life insurance cover soars in slump

Relevant offers

Money

Consumer confidence up, but caution urged Gold bullion dealer's victims want information Student debt myths debunked Damages claims key to Hibernian funds recovery Loan sharks cruising poorest areas - report Auckland, Wellington expensive for expats SFO launches investigation into gold trader World Cup prompts shoppers to open wallets House sales rise, median price stable EPIC fund shareholders learn of $8.8m payout

Sales of life insurance policies have rocketed during the recession, but industry sources say the boom is more likely fuelled by hungry salesmen than rising fears of mortality.

Despite the downturn, sales of new term life, trauma and income protection policies were up 34% in the year to the end of June compared to the same period two years ago.

And with life insurance commissions at record highs – some advisers can pocket up-front commissions worth 230% of the first year's premium – it appears there has been a huge pay-off for advisers.

Milton Jennings, chief executive of flourishing New Zealand-owned life insurer Fidelity Life, said the leap in sales in 2008 and 2009 was welcome as New Zealand was underinsured compared to other countries, but the bumper year was a result of struggling mortgage and investment brokers piling into the sector.

"Insurance is something that is sold, not bought, so the more people selling it, the more that gets sold," Jennings said.

Russell Hutchinson from Chatswood Consulting, which monitors commissions, said: "Market growth would have been 2-3% a year, but over the last couple of years it has been more like 8% or 9% depending on how you count it."

That's a growth rate most industries would envy at this time, and for the advisers it is profitable work – Hutchinson said few advisers would be pocketing less than 100% commissions, and that the highest were more than 230%.

Jennings warned that the bounty wouldn't last. A costly spike in claims this year, as well as a new, more burdensome taxation regime due to hit bottom lines next year, meant insurers would have to cut the up-front commissions they paid, he said.

Ron Flood, president of the Life Brokers Association, said insurers were saying the levels were unsustainable and advisers were being warned of commission cuts, but, in a fiercely competitive market, it was hard to see how that would play out.

The banks were now responsible for more than half of new life insurance sales, he said. "You can't walk in through the front door of a bank without being offered insurance."

The latest financial figures from ANZ National Bank-owned ING Life show how costly getting new business can be. In the year to the end of December, ING Life gathered $40 million in premiums (up from $28.5m the previous year), but its costs were $84.9m, including $32m for commissions.

Vance Arkinstall, chief executive of the Investment Savings and Insurance Association of New Zealand, said there was a second reason that insurance was counter-cyclical.

"In times like these, people are more aware of personal risks and are looking at whether they have enough insurance," he said.

But Hutchinson said not all commissions were at record levels. While those for life insurance remained at highs, and were higher than commissions overseas, commissions on medical insurance had actually dipped as a result of rising claims costs for the insurers.

Although new business had spiked, a second trend was visible behind the ballooning numbers – a rise in the number of people ditching their insurance.

In the year to the end of June, $89.6m worth of policies lapsed, was cancelled or surrendered compared to $64.7m the previous year and $31.9m the year before. Flood said some of that would be policies terminated after claims, but much would be from people deciding they could no longer afford the insurance.

- © Fairfax NZ News