News Regulations15 May 2019

New Zealand:Regulator urges life insurers to conduct themselves better


The Financial Markets Authority (FMA) has raised concerns about issues within the local life insurance sector especially regarding conduct and culture. Speaking at the IFSO Conference 2019, director of regulation Liam Mason said that the FMA's recent review of the sector revealed that there was inadequate leadership as well as a lack of oversight of advisers and intermediaries as two main areas which led to poor customer experience.

Established about 8 years ago, the FMA is the first conduct regulator of New Zealand’s financial markets and its principal legislation is the Financial Markets Conduct Act.

FMA’s review of the life insurance sector was undertaken in collaboration with the Reserve Bank. It examined conduct and culture maturity in major areas such as customer outcomes, governance, risk management and issue identification and remediation.

The review noted that there was good customer focus in frontline claims teams, complaints handling teams and some call centres. However, this customer focus was not always reflected across the insurance companies as a whole.

In particular, FMA found it disappointing that most life insurers were not asking questions about conduct within their firms, and boards have not been demanding information regarding customer outcomes and treatment.

Mr Mason said there was limited evidence to suggest that life insurers had looked at FMA’s conduct guide or were assessing their businesses against the themes and issues that had emerged from the Australian Royal Commission.

“Not enough is being asked to let insurers gauge the standards of conduct occurring in their names,” he said.

According to FMA, life insurers are unwilling to accept responsibility for what is being done in the insurer’s name and with the insurer’s products. He reiterated that the insurer is ultimately accountable for customer outcomes.

FMA found the following breaches of conduct among life insurers:

• The selling to foreign customers who were ineligible for cover as they were not New Zealand residents.

• Sending out information to customers the insurer knew was incorrect.

• A system error that resulted in an excessive inflation increase of up to 30 times, with matching increases in the premiums. When discovered, the insurer did not proactively contact customers, and three years on remediation had not been completed for just under half of the customers involved

Life insurers urged to monitor complaints

FMA also observed that complaints are helping to highlight issues to insurers, and not their own monitoring processes which was found to be often poorly embedded, inconsistently used and under-invested in. Therefore, FMA urged insurers to employ appropriate systems and processes to record and resolve complaints.

The regulator found inadequate monitoring of outcomes particularly in products such as:

  • Accidental death cover
  • Specified injury cover
  • Funeral cover
  • ‘guaranteed acceptance’ products
  • Loan or credit card repayment protection insurance (payment protection).

FMA felt that these products were highly unlikely to be of real value to consumers given its performance in terms of loss ratio or declinature rates.

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