New Zealand regulator alarmed by $34m spent on insurers' non financial incentives

Trips, business support and conferences may influence insurers’ exercise of duty.

The New Zealand Financial Markets Authority has expressed concern after a report detailed how nine life and health insurance companies spent a total of $34m on non-financial incentives for financial advisers over a two-year period.

These incentives include trips, business support and conferences which raise the possibility of conflicted conduct as incentives could influence the way insurers provide advice to their clients.

The largest type of soft commission was trips as insurers spent $18m on taking their advisers on trips, with 24 being international, whilst 5 were domestic in nature. Destinations included Tahiti, China, Britain, Argentina, Japan, the United States, Singapore, Fiji, Taupo, Bay of Islands and Queenstown.

“We are concerned that insurers are designing and offering incentives that potentially set advisers up to fail in complying with their obligations,” said Liam Mason, FMA Director of Regulation.

The report discovered that when one insurer stopped offering overseas trips as incentives, sales plunged by a third, highlighting the fact that soft commissions wield influence over adviser behaviour.

Sales and advice and the risks of conflicted conduct will be examined in two further reviews by the FMA which will look at insurance replacement business practices in QFEs (large financial institutions) as well as the structure of bank incentives in the sale of financial products.