The research from NZIER was discussed by a panel in Auckland yesterday.

The report, Resetting life insurance, said insurers paid average commissions of $221 million per year on new business of $123 million per year over the period from 2012 to 2014.

Cutting the commission costs by 25% would initially cut premiums by 3.5%, which would increase to a saving of 6% over time.

The panel said New Zealand’s insurance industry had a trust problem. This country has the third-lowest life insurance penetration in the OECD and the number of people with life insurance is static.

Panelists pointed the blame at insurance advisers – Retirement Commissioner Diane Maxwell said there was more work to be done to engage the growing number of Maori and Pacific Island consumers.

Other panellists said more work was needed to show people the value of insurance.

But Consumer NZ chief executive Sue Chetwin said more transparency about the industry was not the answer because consumers would not respect many of its practices, such as high upfront commissions and soft commissions.

“We’re talking about educating consumers about life insurance, what would you actually be telling them? Would you tell them that when they are being sold into a life insurance policy that the adviser is likely to be making a 230% commission on it? Are we going to tell them that within a couple of years of that, the insurance adviser will come back to you and sell you up?”

She said the industry needed to rethink its future and tidy up its own house before it focused on other reasons that consumers might not see value in life insurance.

PAA chief executive Rod Severn argued for advisers, saying the “vast majority” of his members had consumers’ best interests at heart.

The report also said just 1.2% of advisers had the top 20% of the annual premium in the market, and the bottom 50% shared 5%. The highest-paid advisers had annual income of $778,000 each.

The report said the highest-earning advisers would be least likely to leave the industry if commissions were tweaked. Those earning the least were likely selling insurance as a secondary source of income and would probably give up if the rules changed.

The calculations were based on Sovereign data.