Brought to you by:

Regulators savage NZ life insurer conduct

Facebook Twitter LinkedIn Google

New Zealand regulators have sharply criticised the life insurance industry’s poor governance and conduct following a review.

The damaging report – drawing on a review of 16 insurers – has echoes of misconduct uncovered in Australia’s Hayne royal commission. It reveals extensive weaknesses in life insurers’ systems and controls, weak governance of conduct risks and a lack of focus on good customer outcomes.

Reserve Bank of New Zealand Governor Adrian Orr warns the industry’s services are vulnerable to misconduct and an escalation of issues seen in “other countries”.

The report also flags a lack of board autonomy and control among foreign-owned insurers, and warns boards to ensure their policies are appropriate for New Zealand customers and staff. Many life and general insurers in New Zealand are Australian-owned.

It says New Zealand insurers have been too slow to respond to problems, and in a few extreme cases have shown no interest in remediation.

A lack of interest in maintaining robust conduct systems is causing poor customer outcomes, which is compounded by insurers’ belief they are not responsible for outcomes caused by the poor behaviour of advisers who sell products.

There is a serious lack of insurer oversight and responsibility on sales, advice and customer outcomes via third-party distribution channels, the report says.

There is also limited evidence of products being designed and sold with good customer outcomes in mind, and hardly any policy for dealing with vulnerable customers.

Reporting of conduct risk is limited, often ad-hoc and reactive, while conduct risk management is insufficiently integrated across businesses.

Most complaints about advisers are handled by internal business development managers, who also manage the relationship with advisers, creating a conflict of interest.

Financial Markets Authority (FMA) CEO Rob Everett also criticises the industry for complacency around conduct risk and its lethargic approach to making changes after previous FMA reviews. Insurers are insufficiently focused on creating a culture that balances the interests of shareholders and customers, he says.

The report says sales incentives structures create the risk of prioritising sales over customer outcomes, and there is also evidence of churning.

Insurers must report to the regulators by June 30, showing how they will address sales-based incentives for staff and intermediaries.

They must also review their products and policyholder portfolios to identify conduct and culture risk issues over the past five years.