Insurers cagey on financial strength
More than half of insurers are doing a bad job of revealing their financial strength measures to policyholders.
The law requires insurers to give policyholders information about their financial strength and ability to pay claims, but a report from the Reserve Bank says many are failing in their legal obligations.
‘‘The overall level of compliance was found to be well short of the minimum requirements, with 53 per cent of participants assessed as complying at a low or poor level,’’ said the Reserve Bank, which regulates insurers.
‘‘Only 22 per cent of the sample performed relatively well,’’ it said.
Every major insurer is required to have a financial strength rating. These tell policyholders about each insurer’s financial resilience, indicating its ability to cope with economic downturns and sudden spikes in claims, such as those caused by massive events like earthquakes, or a pandemic.
The Reserve Bank concluded after a review in February that many insurers, both general insurers providing house and car cover, and life and health insurers, weren’t taking their responsibilities seriously.
‘‘The disclosure requirements for many appeared to be viewed as a compliance exercise rather than ... providing this important information for policyholders to assist in their buying decisions,’’ it said.
Sometimes, the information was buried in enormous disclosure documents emailed to policyholders, or posted on websites under unappealing tags such as ‘‘regulatory disclosures’’.
People considering buying insurance, or renewing their cover, should be given the information in an ‘‘easily readable’’ form, not in the fine print, the Reserve Bank said.
There were particular problems with insurers who sold their policies direct to the public online, or by phone.
The Reserve Bank, which enforces minimum solvency requirements for insurers, believes revealing their financial strength will help with ‘‘market discipline’’ and put pressure on them to improve their financial resilience.
Richard Klipin, chief executive of the Financial Services Council, a lobbying group for insurers, said the Reserve Bank report provided ‘‘a valuable lens on the New Zealand insurance market and it’s clear that we collectively have work to do in lifting compliance levels with disclosure requirements.’’
The Reserve Bank noted that five insurers failed to even respond to its questions, even though this was a statutory requirement.