Marlborough Express - Weekend Express
Shining light on insurers
The one thing people need to know about their life insurer is whether it will pay at claims time.
And yet, that’s one thing people buying life insurance don’t get to see.
We buy our insurances for life, trauma, income protection and loans from banks, advisers, lenders, in the supermarket and online.
But nowhere in our buying process are we able to see whether the insurer we are considering is in the habit of declining alarming numbers of claims compared to other insurers.
The Reserve Bank and Financial Markets Authority (FMA) has just torn a strip off the life insurance industry in a ‘‘conduct’’ report.
When it’s designing insurance policies, and selling them, the Reserve Bank and FMA found, life insurers’ focus was not on whether they were good for the people they were selling them to.
Reserve Bank governor Adrian Orr and FMA chief executive Rob Everett declined to name the insurers responsible for some particularly egregious bits of misconduct included in the report.
Yet that’s exactly what we, the public, want to know.
Which insurers can we trust, and which are happy to exploit policyholders?
Without consumers knowing that, how can the $2.6 billion life insurance market function like a market, with good insurers being rewarded, and bad insurers having to change their ways in order to stay in business?
The Government has responded with the Cabinet voting to fast-track laws putting duties on banks and insurers to prioritise the interests of their customers.
The protections should include measures to give the public the information it needs to exert informed consumer choice.
Life insurance is an industry with a singular lack of transparency, making it hard for people to know which to trust.
We simply don’t know how often insurers decline claims, because they don’t have to tell us.
We don’t know which insurers are the worst at paying claims, and which are the best.
We don’t know which insurers have the worst ‘‘lapse rates’’, indicating high levels of disgruntled policyholders stopping paying premiums, and cancelling their policies.
The life insurers don’t have to publish details of the commissions they pay to advisers, and resellers like banks, on their websites.
If the public had this information, consumers could start making more informed decisions. There are precedents for this. Sometimes when politicians lose trust in an industry, they force transparency to make the market work better.
Lenders are forced to put their interest rates, fees and contracts on their websites. Fund managers have to publicly report on their funds.
Insurers tell me this would actually help the industry by showing what good claims payers they are.
Right then. Let’s make it happen.
We simply don’t know how often insurers decline claims, because they don’t have to tell us.