Friday, 22 February 2019
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Editorial: Overcharged Kiwis are none the wiser after insurance review – The Press

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Sixteen insurers were investigated by the Reserve Bank and Financial Markets Authority.

EDITORIAL: A much-touted review of the “complacent” conduct and culture of the life insurance industry is, if anything, too cautious. 

The 38-page report, released on Tuesday by the Financial Markets Authority (FMA) and the Reserve Bank, is the second in a series that was prompted by inquiries into the banking, superannuation and financial services industries in Australia. An Australian royal commission has been unearthing some truly disturbing stories of misconduct. 

The New Zealand reviews, first into banks and now into life insurance, have lacked the scope and powers of the Australian investigations. While highlighting examples of “poor conduct” and potential breaches of the law, the latest review stopped short of naming firms and arguably left consumers none the wiser. The best follow-up we can hope for is fast-tracked regulation by the Government, and the optimistic possibility that the sector might welcome a review of its culture and clean its house accordingly. 

Financial Markets Authority chief executive Rob Everett, left, and Reserve Bank governor Adrian Orr at the release of the damning report into the life insurance industry.

ROSA WOODS/STUFF

Financial Markets Authority chief executive Rob Everett, left, and Reserve Bank governor Adrian Orr at the release of the damning report into the life insurance industry.

“Across the sector, governance and management of conduct risks is weak and there is a lack of focus on good customer outcomes,” the report said. “There is a serious risk of further conduct issues arising. Insurers need to act urgently and undergo major change to address these weaknesses, as they leave the industry vulnerable to misconduct and escalation of issues.” 

READ MORE:
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Sales are more important than customer outcomes, a finding that may not surprise many. There was evidence of policies being “churned”, meaning that customers are sold new policies that are not in their best interests so that the salesperson can earn commission.

At a governance level, few life insurers had thought seriously about conduct and culture before this review, and boards and senior management were not setting a tone “for managing conduct risk and prioritising good customer outcomes”.

The report talked of poor conduct and even some instances of potential misconduct, meaning breaches of the law.

123RF

The report talked of poor conduct and even some instances of potential misconduct, meaning breaches of the law.

More startlingly, the review revealed that life insurance commissions paid by New Zealanders are twice as high as in other OECD countries. Prime Minister Jacinda Ardern described this as “fundamentally wrong”. Consumers might have much stronger words. If those commissions were halved, premiums would drop by 12 per cent. 

There were also headline-grabbing examples of shocking behaviours. One insurer sold insurance to foreign customers despite only New Zealand residents being able to make claims. Premiums continued to be charged after policy end dates and cancellations. One provider would only reduce and refund high premiums for older customers if they complained. Insurers lacked ways to deal with vulnerable customers, and staff were insufficiently trained in many cases. 

The report talked of poor conduct and even some instances of potential misconduct, meaning breaches of the law. Would naming and shaming the companies at fault have been more effective than giving a general picture of a rotten culture and suggestions of possible law-breaking? Perhaps. But in defending his decision not to name the insurers, FMA chief executive Rob Everett essentially stated that none are significantly better or worse than others. 

Does that help a consumer who is thinking about taking out life insurance? Not entirely. The report has been criticised for being more useful to the industry, which gets a Government-funded culture review for nothing, than to consumers. It sets homework for the insurers and asks them to come back by the end of June with ways to improve.

A view from the FMA that it hoped insurers might have looked at problems in other sectors and proactively checked their culture and made appropriate overhauls without being asked seems more than a little naive. 

The Press

Source: https://www.stuff.co.nz/business/opinion-analysis/110254048/editorial-insurance-review-could-have-hit-harder

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