Insulation around ceiling exhaust fan

I went to investigate why my ceiling exhaust fan was not working in the laundry and discovered all this insulation close to the fan and blades. One of the blades had insulation blocking it's movement

Clearly this not an effective arrangement to exhaust air but is this a cause of concern?

Should I cut back the insulation around the fan to create a bit of room or is this these fans that exhaust into the ceiling are commonly installed?