New Zealand life insurers primarily offer risk-only products with cheaper, yearly renewable premiums which increase with age - a situation quite different from much of the rest of the world, according to a paper by the international professional services firm Deloitte.
In comparison, life insurers in many overseas markets offer combined savings and insurance products such as whole of life and universal life and use a level premium structure, says the “Deloitte Issues Paper: The New Zealand Life Insurance Sector” commissioned by Partners Life in advance of an expected review of capital requirements and solvency standards for the life insurance sector by the Reserve Bank of New Zealand.
The paper notes that bundled savings products were previously available in New Zealand but were mostly discontinued in the 1970/80s. This was partly due to the public’s preference for cheaper coverage such as yearly renewable term policies, which do not include a savings mechanism and therefore cost less.
More generally, the low levels of return offered by savings-type products combined with a lack of tax incentives for retirement savings investments have led to a low level of demand. The introduction of KiwiSaver, which is a voluntary savings scheme, and easier access to managed funds have also had an impact on the demand for traditional savings products, as consumers prefer to invest with investment specialists and turn to life insurers for the insurance coverage alone.
As for life insurance distribution in New Zealand, a small proportion of life insurance is sold directly (~7%), or through bancassurers (29%). Both channels tend to offer products that are:
The majority of business is sold via advisers, who play a central role in the New Zealand life insurance market, selling almost two thirds of new policies.
The adviser market is made up of approximately 7,000 Registered Financial Advisers (RFAs) who can give personalised advice on life insurance, but not on products with an investment component such as KiwiSaver, bonds, shares, managed investment products and derivatives. There are approximately 1,800 Authorised Financial Advisers (AFAs) who can provide advice on most types of financial products, including investment planning services.
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