New Zealand advisers and life insurers have rejected changes to life commissions in submissions to the Government’s financial advice inquiry.

The Boutique Advisers Alliance (BAA) says restrictions or bans will exacerbate the underinsurance problem.

“In the case of insurance, limiting or banning commissions will have a devastating effect on the availability of advice,” the industry body warns in its submission to the Ministry of Business, Innovation and Employment.

“Numerous regulatory changes globally to this effect have shown this to be the case.”

The American Income Life Insurance Company submission also rejects a ban on commissions.

“In the absence of commissions, the number of insurance agents or brokers would necessarily decrease, to the detriment of consumers,” it says. “New Zealand has an underinsurance problem, which would be exacerbated if commission-based sales were prohibited.”

It says consumers are reluctant to pay for advice, particularly on insurance.

Suncorp Life also rejects commission changes or a ban.

“It is too difficult to enforce and will end up costing consumers,” its submission says.

“There are issues in identifying so-called soft commissions and other benefits. Our view is these benefits can significantly influence advisers’ sales practices, in conflict with the interests of consumers.”

However, AMP backs restrictions on life insurance commissions.

“While we support some commission control, such as removal of soft commissions and volume aggregation, and would support some regulation that would prohibit disproportionate initial commissions, we accept this position may not be widely supported,” it says.

“An alternative approach, and in the interests of ensuring conflicts of interests are appropriately managed, is to ensure advisers must be able to disclose their remuneration to a precise dollar amount.”

AMP says commissions such as overseas trips for selling a certain number of policies sold should be banned.

In Australia it has been argued that restricting life insurance commissions would stop churning.

The BAA argues this is wrong, and a better solution would be new rules making advisers give reasons for moving policies.

The AMP Advisers & Adviser Businesses Association says rather than applying a blanket ban on churn, it should be addressed on a case-by-case basis.

“The suppliers want new business and they are not questioning the business,” its submission says. “The replacement business forms go to the new supplier and a copy should also go to the existing supplier, so they can challenge replacement. There needs to be a demonstrable benefit to the client and this should include premium savings.”