Profit-first attitude exposed by probe

The interests of customers are being put second to profits by the life insurance industry, the Financial Markets Authority (FMA) says.

Its investigation into insurance sales at banks, and other insurers such as AA Life and Cigna, could also lead to action against three large insurance sellers, the FMA said. The three are not named in the report.

The FMA said fewer than half of the 11 banks and insurers investigated advised customers of the risks of ditching their old policies in favour of the new ones they were being offered.

‘‘The FMA considers that replacing insurance policies is a high-risk transaction for customers, because of the risk of claims being declined in the future and original policy benefits being lost,’’ FMA director of regulation Liam Mason said.

‘‘Customers may never discover this, until they try to claim on the insurance.’’

Life insurance is big business, with more than $2.2 billion a year spent on policies, so there’s a hefty financial incentive for companies such as banks to convince customers to move their policies away from rivals.

AMP managing director Blair Vernon said the customers of AMP’s rivals often didn’t even get told about the massive commissions the adviser would be paid for switching their policies from one insurer to another, or about the ‘‘soft dollar’’ perks they could get, such as trips to exotic locations.

‘‘I’ve seen replacement business pitched on a one-page piece of paper. It’s laughable that is acceptable,’’ he said.

Mason said: ‘‘Among the 11 entities reviewed, less than half advise their customers that replacing their life insurance could lead to worse cover or the potential loss of benefits.

‘‘This means consumers are not being provided sufficient and necessary information to make an informed decision on the benefits and risks of the advice that is being offered.

‘‘We are concerned that a number of firms are not recognising or treating the risks to customers in replacement insurance transactions.

‘‘Processes seem to be set up to manage the risks faced by the firms, not to help customers.’’

Only two of the banks and insurers probed had systems designed with better customer outcomes in mind, the FMA concluded. Vernon said those two included AMP.

The release of the report comes less than two months after the FMA said it had seen no evidence that an Australianstyle commission of inquiry into banking misconduct was needed in New Zealand. AMP; ANZ; Asteron Life; Bank of New Zealand; Cigna Life; Farmers’ Mutual Group; Medical Assurance Society; Partners Life; Sovereign; AA Life; Westpac