Research by New Zealand’s Financial Markets Authority (FMA) shows 31% of life insurance policies lapse within three years.

Looking at policies sold in the year to March 2012, with data provided by 12 life insurers, the FMA found the average duration of active policies was five years. It also found 28% were active for less than five years.

Based on data from the life companies for 2014, the FMA found about 3700 advisers sold at least one life insurance policy.

About 3700 advisers sold at least one life insurance policy in 2014, according to the report.

Of these, 1100 had more than 100 active life policies on their books, and the FMA found 200 were active in replacement business.

These 200 advisers had 65,000 active life insurance policies between them, with about $NZ110 million ($105 million) of annual premium.

Registered financial advisers (RFAs) had higher rates of churn than authorised financial advisers.

“About two-thirds of the high-volume advisers, and 86% of the high-replacement advisers, were RFAs,” the report says.

“Some RFAs replaced more than 35% of their life policies in one year.”

Driving replacement business was sponsorship or overseas trips offered by life insurers on business not subject to clawbacks.

FMA Director of Regulation Liam Mason says most advisers do not have high business replacement levels.

“However, there is a clear link between high rates of replacement business in certain areas and high upfront commissions, or incentives for high sales volumes, such as overseas trips laid on by providers,” he said.

“Following our report, FMA staff will be taking a closer look at the conduct of those advisers with the highest volumes of replacement business.”

The FMA will examine the reasons behind switching policies, including incentives.

“We will be paying particularly close attention to the behaviour of insurance advisers where it is unclear that the appropriate care, diligence and skill are being provided to their customers,” Mr Mason said.

The report has been handed to the Ministry of Business, Innovation and Employment to consider in its review of the Financial Advisers Act.