Missed deaths ‘risk’ for life insurers

Watchdog says many need better systems to know when clients have passed away

Around half of New Zealand’s life insurers are not doing a good enough job of monitoring deaths meaning some are going unreported, according to New Zealand’s financial watchdog.

But a spokeswoman for the Financial Markets Authority says it has not found any evidence of New Zealand insurers knowingly deducting premiums despite being notified of deaths.

One of the shocking issues which emerged from Australia’s Royal Commission for misconduct into financial services was firms charging premiums to people who had died.

AMP admitted to charging A$1.3m in premiums for life insurance to more than 4600 superannuation customers it knew had died.

Its investigation was prompted by Commonwealth Bank of Australia which said it had been charging dead clients for financial advice.

The FMA spokeswoman said in Australia life insurance was embedded in superannuation funds.

“We don’t have that feature with KiwiSaver.”

She said in Australia system errors meant insurers continued to deduct premiums from dead members’ accounts or did not process refunds owed to them, despite being notified of their deaths. “We did not find evidence of any New Zealand insurers knowingly deducting premiums despite being notified of deaths.”

But it did find some insurers did not have good processes to monitor the deaths register and other did not provide enough information for the regulator to form a complete picture.

“We do see this as a risk that needs to be addressed by some insurers but would emphasise that the scale of the issues we’ve seen so far is small and involves tightening processes rather than deliberate misconduct.”

It had found a “small number” of cases where poor systems and processes contributed to under reporting of deaths. “In some cases, banks had been informed of a customer’s death but had not passed that information to insurers. In other cases, insurers had no processes in place to monitor the deaths register.”

The spokeswoman said that while it was the responsibility of the estate to notify the insurer, not an insurer’s job to check a policy holder had passed away, the reality was that many New Zealanders did not have wills or estate plans in place.

“That is why a number of insurance companies do have established processes to monitor the deaths register.

“We did not find major . . . incidence of these problems but around half of the companies have still not done the necessary work to identify these and other customer issues.”

Richard Klipin, chief executive of the Financial Services Council, the industry body for life insurers, said the life insurance industry took its obligations very seriously and did its utmost to pay claims in a speedy and efficient way.

But he said there were a small number of cases where that was difficult to do.

Klipin said insurers actively sought out next of kin to pay out policies.

“When someone passes on there is a whole legal and probate process.”

He said life insurers had strong

In some cases, banks had been informed of a customer’s death but had not passed that information to insurers. FMA spokeswoman

policies and procedures around that.

Nick Stanhope, chief executive of AIA New Zealand — New Zealand’s largest life insurer, said it paid out all valid claims made which in the last year was 94 per cent of all claims.

“The FMA, in their review of the industry, has not raised any concerns with us with regards to our claims processes and, in particular, with regards to this specific issue.”

Stanhope said in general, claims for life insurance were made by the next of kin of the policy holder.

“We are often also notified of a death by the policy holder’s financial adviser or by their lawyer or executor of their estate.” But where it was not notified it had processes and procedures in place, which complied with the requirements of the Unclaimed Money Act and of the Inland Revenue Department, to make contact with the next of kin or executor of the estate.

“We apply a case management approach to ensure that payments are made in a timely manner and that customers are supported in their time of need.”

Financial advisers spoken to by the Herald said insurers who were informed of deaths were quick to refund premiums that had gone out after a person had died.

But pointed to direct insurance sales and bank insurance sales as being more of an area of concern.

Around half of life insurance sales do not go through a financial adviser.

The regulator has given nine out of 16 life insurers until December to report back further on a number of areas.

She said it had not singled out any companies because none stood out as doing a particularly great job.

“Equally, we didn’t see any serious misconduct which would warrant us warning members of the public about specific firms at this point. However, we still don’t have a complete picture and it would be irresponsible to highlight individual performance until we have the information we need.”