Regulators that issued a damning report on life insurers in New Zealand are warning that general insurance providers shouldn’t think they are in the clear.

The report, by the Financial Markets Authority and Reserve Bank, was issued in late January.

It found serious problems with many life insurers in this country. 

Across the sector, governance and management of conduct risks was weak, it said, and there was a lack of focus on good customer outcomes. “There is a serious risk of further conduct issues arising.”

The Financial Markets Authority and Reserve Bank said, while this report prioritised life insurers for review, everyone in the insurance sector had to consider the conduct risk in their businesses.

“Given the similarities between life and non-life insurance, it is possible that the vulnerabilities identified in this report may exist across the broader insurance industry. We expect all insurers to assess their conduct and culture governance frameworks, and consider and act on all relevant recommendations in this report.”

One insurer was selling insurance to foreign customers despite only allowing New Zealand residents to claim on the policies. 

Old policies were not being cancelled, and premiums were still taken, even when the customer had been transferred to a new policy. Premiums were being charged after the policies’ end dates and some insurers were only fixing problems for customers who complained.

There was limited evidence of products being designed and sold with good customer outcomes in mind, and very little in the way of policies for identifying and dealing with potentially vulnerable customers

Some insurers lacked good internal complaints processes. 

There were also concerns about the way insurance advisers were being used. 

Some insurers did not have enough oversight of how advisers operated, and they needed to have more ongoing training in the products they were dealing with, the regulators said.

“We saw evidence of sales incentive structures (internal and external) creating risks of sales being prioritised over customer outcomes, and of policies being ‘churned’, ie, customers being sold new policies that are not in their best interests so the salesperson can earn a commission.”

There was a lack of insurer oversight of advisers and remediation of conduct issues was "very poor", the report said. Some insurers seemed to think they were not responsible for customer outcomes that were influenced by adviser conduct.

Some even regarded the adviser as the customer, the report said. That could lead to a situation that prioritised the needs and outcomes of advisers over the clients themselves. "It can also raise the question of whether products are designed for customers or to suit advisers' sales strategies. An advice-centric philosophy can also make it difficult to hold advisers to account for poor behaviour."

Government action

After the report was issued, Finance Minister Grant Robertson and Commerce Minister Kris Faafoi said Government would fast-track consumer protection measures in the financial sector, across the wider insurance and banking industry.

That would primarily mean tackling high upfront commissions and overseas trips offered as incentives to advisers.

“Incentives such as overseas trips and loaded upfront commissions can cause a conflict for the salesperson. We have also heard about insurance policies being sold to people who are ineligible for cover, premiums continuing to be charged for a policy that’s no longer in effect, and policyholders not being effectively notified of increases in premiums,” Faafoi said.

“We plan to release a consultation paper on the changes by May and introduce legislation later this year."

At the moment it appears that this could mean moving all advisers to a model that is more like the general industry, where there is more focus on ongoing earnings than upfront payments.

Robertson noted the changes could be wide-reaching.

“While this report focuses on life insurers, it’s possible the vulnerabilities it identifies may exist across the broader insurance industry.

“We will consult with the public and industry on these changes, but we are going to move as quickly as possible on this because New Zealanders need to have confidence their rights and interests are being protected."

In many ways, New Zealand regulators seem to have an eye on Australia, where drastic changes are afoot.

There, the report from the Royal Commission of Inquiry into Misconduct in the Banking, Superannuation and Financial Services sector called for a ban on life insurance commissions but only said the regulator, ASIC, should "review the exemptions for general insurance products and consumer credit insurance products" in 2022.

But ASIC has already indicated it would support a total ban on general insurance commissions.