In the year to June 2014, New Zealand consumers spent $1.7 billion on annual premiums for life insurance policies. Just under half of these policies were sold through financial advisers, and a significant percentage were shifted during the year from one insurance provider to another.
The FMA previously raised concerns about the extent of replacement business in the life insurance industry. Replacing one insurance policy with another can be in a consumer’s best interest. However, if the move is driven by what the adviser will earn in incentives and commission, and there is no clear benefit to the consumer, it is known as ‘churn’. In response to these concerns, we initiated a review to determine whether insurance churn exists in the New Zealand market and, if it does, whether it harms consumers.
This paper is intended for an analytical audience who are interested in how we analysed policy survival using the data received as part of the insurance replacement business project. Readers should read the above report if they are interested in the final results and the implications for the industry. The statistical approach was externally peered reviewed by an expert in the field.