FMA has stern words about life insurance industry conduct
THE New Zealand life insurance sector has been too ‘‘complacent’’ around risk and not focused enough on developing a culture that aligns the interests of shareholders and customers.
The admonishment comes from the Financial Markets Authority (FMA), following its joint conduct and culture review with the Reserve Bank of NZ.
In its 2019 annual report the FMA notes that life insurers’ processes and practices were ‘‘materially worse’’ than those in the banking sector.
‘‘We identified instances of potential misconduct where customers were misled or sold inappropriate products or were not treated in accordance with the terms of their policy.’’
Nor were banks let entirely off the hook, as the FMA report noted that there were ‘‘deeper problems in the same risk areas for banks’’.
FMA chief executive Rob Everett said a major issue was around the way in which staff were incentivised, to ensure that selling products and meeting targets is not prioritised over providing customers with suitable products and advice.
He said the review had been the single largest thematic review the FMA has undertaken and dominated activity for the year.
‘‘It noted gaps in the legislation for regulating conduct in these sectors and the government has subsequently published proposals in September, setting out its intentions to regulate and license this sector, subject to parliamentary approval.’’
Mr Everett said the FMA would continue to push the highlevel recommendations from its reviews.
‘‘These are not specific to banks and insurance companies.
The recommendations are equally applicable to all financial market participants to help promote fair treatment of customers.’’
He added it had also been a strong year for enforcement activity.
The FMA had addressed misconduct in ways including a variety of court proceedings (both civil and criminal), an enforceable undertaking, and public warnings.
Last year the FMA spent just under $3 million in litigation costs, almost 50% more than its appropriation of $2 million.
Mr Everett said the difference had been funded by the FMA’s operating fund and reserves and the FMA had recently applied for and received, additional crown funding.
The FMA spent a total of $39.2 million last year, of which $24.4 million was related to personnel.
The salary bill included 92 personnel earning more than $100,000.