Katrina Church, of Insurance People, said she was concerned about the number of policies still in force in the market that had been superseded. 

“As a broker, I have got to make sure that I’m acting in the client’s best interest. We talk about churn and replacement business; I cannot sit on a product that was written 15 years ago as a trauma product when I am worried whether or not the cancer definition will get paid out,” she said.

“So the industry has got to take some responsibility for that; the carriers have to do something with their dormant product rather than let it sit and give us a reason to actually replace it. I think that has not been picked up by the regulator at all. I think the product is a lot more complicated, our client’s health is a lot more complicated.

“What I would like to see more insurers doing is not have dormant product but actually have product that will have pass-backs because it really makes our job a lot easier. The conversation about whether the product could be better somewhere else goes away and you get to have a conversation around affordability, the investment that they want to put in there and whether the cover is right and the levels are right,” she said. “That’s a better conversation to have than whether the Tower trauma wordings are up to speed.”

Industry commentator and former head of AIA and AIG Life Australia David Whyte agreed it was a problem but said there was no obvious solution. “It bothers the companies as much as it bothers advisers and clients. But with changes in systems, actuaries, reinsurers, sometimes things fall through the cracks.

“There are some products out there with contractual obligations in them that companies aren’t geared to handle.”

But Naomi Ballantyne, of Partners Life, said some so-called “dormant” products might be closed to new business because the benefits became unsustainable in terms of insurer profitability.

“These benefits are very beneficial to the client and cannot be replaced. So being closed for new business does not mean these products are bad for the consumer and therefore ‘ripe’ for replacing – in fact the complete opposite might be true.”

She said even if a client’s existing policy was not as competitive as what was available in the market, if their health had deteriorated and they could not move, maintaining the cover was important.

“Although in these circumstances, I agree that the company could do what we do and automatically, retrospectively apply beneficial upgrades to those existing clients so they are not stuck in a decreasingly competitive product.”

But she said advisers were required to help their clients through these decisions, and any product that was not competitive should potentially be replaced, not just dormant ones. “This means the adviser is required to understand the existing product to compare the benefits and risks of keeping it versus replacing it. This sort of work is what current upfront commission levels in New Zealand are meant to compensate advisers for.”