The actuarial firm completed a report in November for the Financial Services Council (FSC), which was heavily critical of insurance advisers’ commissions.

It said they were driving poor outcomes for consumers, encouraging churn and boosting premiums.

In the fallout from the report, a number of the FSC’s insurer members quit the organisation. It has since lost its chief executive.

Now, MJW has submitted on the Ministry of Business Innovation and Employment options paper on the Financial Advisers Act review and says the industry needs reform, to remove the conflict of interest created by advisers working on commission.

“Major reforms to the initial commission paid on life policies are critical,” it said.

“We have a poorly functioning market because of the perverse financial incentive in place for advisers. Unless these are tackled head-on, the ability of a new FAA regime to bring about real change is negated.”

It wants commission restricted and life insurance included in the definitions of financial products under the Financial Markets Conduct Act, to give the FMA wider powers to encourage the industry to make changes to how it operates. 

“It is clear that the life insurance industry is unable to bring about a solution to the conflict of interest issue on its own. The events after the publication of the MJW Report demonstrated this.”

MJW said much of what the options paper proposed was an important improvement on the current position and that the focus must be on improving customer outcomes.

But it said resolving the commission conflict was paramount. Life insurance commissions should be regulated because the product was socially desirable, a long-term purchase and there were significant effects if the wrong product was bought, it said.

“The key roadblock to achieving ‘public confidence in the professionalism of advisers’ is the conflict of interest that arises when a product provider remunerates an adviser for placing a customer into one of their products, if the structure of that remuneration works against an alignment of interests. That is the situation we have at present in the life insurance sector. If that issue is not satisfactorily resolved all other changes will be negated and therefore ineffectual. We are unconvinced disclosure can adequately deal with this issue,” MJW said.