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An investigation by the Financial Markets Authority (FMA) found life and health insurance companies spent $34 million over two years on overseas trips and other perks for sales reps.
Consumers ultimately foot the bill for these incentives – known as “soft dollar commissions” – through higher premiums.
Soft dollar commissions, paid on top of the financial remuneration that insurance advisers earn, can range from overseas trips to gifts, prizes and loans. Over the 24 months the FMA reviewed, insurers spent:
Most consumers are unlikely to be aware of these incentives because advisers don’t have to disclose them. However, they come with a real risk that consumers will get skewed advice and sold products they don’t need.
The FMA research shows soft dollar commissions directly influence adviser behaviour. When one insurer stopped offering overseas trips, sales of its products dropped by a third.
We’ve been calling for these types of incentives to be banned because of the risk they present to consumers. At a minimum, commission payments must be publicly disclosed.