Growth in the New Zealand life insurance industry is likely to be hampered in the short term as insurers address issues raised by regulators following a review of the industry's conduct and culture, Fitch Ratings says.
Regulators concluded in a report issued on 29 January 2019 that life insurers were not doing enough to achieve good outcomes for customers and highlighted weaknesses in the approach of insurers to identifying, managing and remediating conduct risks and issues. However, Fitch expects implementation of the regulators' recommendations to address these issues to improve insurers' business profiles over the longer term.
The international rating agency believes insurers may revisit pricing and design of certain life products, which could inhibit premium growth, at least initially. Regulators have identified the presence of certain life products that are of poor value to consumers as the products have extremely low loss ratios and high rates of claims being declined.
Regulators called for changes to incentive structures and removal of incentives linked to sales measures, which create risks of sales being prioritised over customer outcomes. We believe changes to distribution channels could temporarily curb premium growth, but may ensure sustainability of earnings over the longer term.
Fitch thinks that implementation of the recommendations made by the regulators would strengthen insurers' competitive positioning and business risk profiles over the longer term, as well as improve the reputation of the industry as a whole.
The Financial Markets Authority and Reserve Bank of New Zealand conducted a review of 16 life insurers, and identified instances of poor conduct as well as a few instances of potential misconduct that were not currently widespread. The review follows a review of New Zealand banks in November 2018, prompted by similar action in Australia where a Royal Commission found incidents of misconduct in the financial services industry.