Reserve Bank warns insurance sector to improve conduct and culture
BUILDING public confidence in the insurance sector requires more effort from all industry participants, Reserve Bank of New Zealand governor Adrian Orr says.
Speaking to the Insurance Council of New Zealand yesterday, Mr Orr said the insurance sector was part of an ‘‘ecosystem’’ that society relied heavily on both to mitigate risks and transfer the risk burden to those best able to manage it.
‘‘Insurers need to manage the evolving risks facing the sector. For example, climate change is leading to more frequent insurance events.
‘‘Likewise, advances in science and technology are providing more data and insight for insurance riskpricing.’’
Mr Orr said public expectations of what constituted good conduct and culture had sharpened, alongside the recent regulator reviews that highlighted significant shortcomings.
‘‘Now is the time for the insurance sector to review and improve their conduct and culture, and innovate in their business models,’’ he said.
‘‘The insurance sector must use highquality risk management capability to support their business decisions and riskpricing.’’
He said that the Reserve Bank, which was tasked with maintaining industry soundness and public confidence in the insurance sector, ‘‘will monitor the sector’s risk management to ensure the industry provides appropriate outcomes for society as a whole.’’
He said while the importance of open and honest disclosure from insurers was clear, this openness has proven not always to exist.
‘‘We will be intensifying our ‘‘show me, don’t just tell me’’ style of engagement with the industry and we will be expecting to see a great deal more of this verification activity happening at the senior management and board level.’’
Mr Orr said that conduct within financial institutions was a contributing factor to customer outcomes, and could result in a gain or loss of trust and confidence in the industry.
Recent joint analysis by the FMA and Reserve Bank on conduct and culture had shown ‘‘extensive weaknesses’’ in systems and controls for managing conduct risk, coupled with a lack of governance and management oversight and a lack of focus on customer outcomes, and prioritisation of sales over good customer outcomes.
‘‘We strongly believe that all insurers — including health and general insurance — should learn from the review and its findings.
‘‘This is why we have subsequently written to the boards of general insurers setting out our expectations that they will review the culture and governance within their own firms.’’