Insurers must clean up act
A review of the conduct of life insurers found poor value products, claims not being paid when they should have been, and overcharging of premiums.
The review by the Financial Markets Authority and Reserve Bank identified at least 75,000 customer ‘‘issues’’ requiring remediation, with a value of at least $1.4 million.
Commerce Minister Kris Faafoi is set to unveil legislation setting legal duties for good treatment of customers on banks and insurers with the FMA policing them.
The review follows a joint FMA/ Reserve Bank review of the conduct of banks published in November 2018, which found big banks were errorprone, slow to pay back customers they had overcharged, underinvested in systems despite their massive profits, and were incentivising bank staff to sell products, rather than to look after customers’ best interests.
‘‘It is clear that as a sector we need to do more and do it faster to improve identified issues, especially in relation to legacy products, customer communications, and product design,’’ said Richard Klipin, chief executive of the Financial Services Council lobby group for life insurers.
FMA chief executive Rob Everett said: ‘‘While we’re disappointed, we’re not surprised as the responses confirm what we found in our original review. It’s clear that progress has been slow and not as far-reaching as required. Some providers have started work to identify the customer and conduct issues they face, others have not provided any detail on this.’’
Sixteen life insurers were asked to provide work plans outlining the steps they would take to improve their processes and address the regulators’ findings and recommendations.
There was wide variance in the comprehensiveness and maturity of the plans provided, Everett said.
Last week at an insurance conference in Auckland, research revealed that just 12 per cent of people believed insurance companies were ‘‘considerate and compassionate’’, and just 13 per cent felt ‘‘insurance companies were on my side’’.
Reserve Bank governor Adrian Orr said: ‘‘We’re disappointed the industry’s response has been underwhelming. The sector has failed to demonstrate the necessary urgency and prioritisation, around investment in systems, to provide effective governance and monitoring of conduct risk.’’
There was also a wide variance in the quality and depth of the systematic review of policyholders and products. Some did not complete this exercise and others did not provide data on the number of policyholders affected or the estimated cost of remediation activities, Orr said.
Insurers that completed the exercise identified at least 75,000 customer issues requiring remediation, with a value of at least $1.4 million. Some of the new issues identified included overcharging of premiums.
It also included insurers overlooking eligibility criteria and wrongly declining claims and underpaying benefits.
The review also identified poorvalue products, where premiums charged were not fair value for the cover provided.
After the review of bank conduct, the FMA and Reserve Bank gave the banks a year to remove the sales incentives pressuring staff into selling products like personal loans, credit cards and insurance, and banks agreed to do so.
The FMA and the Reserve Bank committed to report back on staff incentives and commissions for intermediaries. Previous reports by the FMA reflected the concerns with conflicted conduct associated with high up-front commissions and other forms of incentives paid to advisers.
The regulators issued a similar challenge to insurers, and some had committed to removing sales incentives for employees and their managers that prioritised sales volumes over customer interests.
The providers which had removed sales incentives weren’t typically those who sold their products through commission-based advisers.
‘‘We do not think high up-front commissions create confidence that insurers and advisers are acting in the best interests of customers,’’ Everett said.
The FMA and Reserve Bank did the reviews into bank and insurer conduct in a bid to stave off the threat of New Zealand following Australia and launching a royal commission into misconduct in financial services. The Australian royal commission revealed what little effort banks and insurers put into looking after customers, and rampant illegal behaviour.