The Fortune Sellers

Life insurance providers are under pressure to disclose sales incentives, which can distort their advice and are banned in some countries. But the industry is resisting.

- Nikki Mandow

He was 18, unburdened by the responsibilities of life. He had no dependants, no mortgage, no debts to be a drain on his estate. Indeed, if the unthinkable happened, he would have no estate to speak of. None of that stopped a canny salesperson selling him life insurance, though the policy he signed up for was promptly unsold when his mum stormed into the insurance company’s office demanding an explanation and a cancellation.

Walking into some life insurance sales offices can be bad for your health. Reports released over the past four months suggest that some New Zealanders are being fleeced by insurance advisers, who persuade them to buy life insurance and related products that don’t suit them. And the advisers are rewarded with hefty – but typically undisclosed – commissions. They may persuade customers to unnecessarily switch policies, so they can get another commission. It’s all legal. And customers are none the wiser.

Sometimes the agents’ commissions are financial; sometimes they get so-called “soft” perks such as prize draws or expensive overseas holidays. Sometimes both. Either way, it is tempting for advisers to put their own interests ahead of those of the customer. And the customer won’t even know what’s happened.

Here’s how it works. You walk into a life insurance office. The adviser will probably have several products on offer, some of which will be better suited than others to your needs.

But what if one insurance company offers a 200% commission on the first two years’ premiums (not unusual), but another offers only 100%? The difference could easily be several thousand dollars for the agent involved. One insurer may give an all-expenses-paid overseas trip to an agent who meets certain sales targets, while another one doesn’t. Or perhaps one offers a trip to Europe and another to the Bay of Islands.