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'Much improvement needed': NZ's FMA unhappy with conduct reviews

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New Zealand’s Financial Markets Authority (FMA) will write to 40 insurers after they lodged “poor” reviews of their own conduct in dealings with consumers.

Only two out of 42 insurers – IAG and Medical Assurance Society – met expectations in their responses to the FMA’s 2019 conduct and culture review of the fire, general and health insurance sector.

Many insurers fail to actively monitor product suitability or withdraw poor value or legacy products and have over-charged some customers, it found.

Examples included insurers double charging customers a number of times, not giving customers promised multi-policy discounts and significantly overcharging some premiums due to poor IT systems.

The FMA concluded general insurers are “ill-prepared” for the Financial Markets (Conduct of Institutions) Amendment Bill (COFI) – due to come into force in early 2023 – and they must establish systems and processes to ensure fair treatment of customers.

“Unfortunately, we were not happy with the response that the industry provided when we ask for the results of their reviews,” FMA Director of Banking and Insurance Clare Bolingford said.

“We were disappointed that the reviews were not conducted adequately on many occasions. We put this down to firms not really understanding the conduct risk that they are running in practice and how their customers can come to harm.

“The majority of the medium and smaller sized institutions have a lot of work to do if they are going to meet the new regime’s requirements,” she said.

The Bill will expand the FMA’s remit to regulate and license the conduct of the insurance sector.

The Insurance Council of New Zealand (ICNZ), which represents 16 of the insurers approached, said there was a need for constant improvement in the sector.

ICNZ CEO Tim Grafton says the review makes clear that “much improvement” is needed before the new regime is introduced, though the timeframe allowed the sector “18 months to get it right".

“This gives the insurance sector the opportunity to work proactively with the FMA to address all areas of concern so we can meet their expectations at that time.”

The 2019 report did not reflect the current state of ICNZ members, he said, as much had been done since it was undertaken almost two years ago. The ICNZ is fully supportive of steps to ensure good customer outcomes and confident its members share this commitment.

Ms Bolingford says firms need to put more time and energy into focusing on their systems, governance and processes to make sure that customers are “treated fairly in practice”.

“We will be writing back to each firm individually to set out what those areas are and we expect them to make progress on those before the new regime comes into force.”

In mid-2019, the regulator asked providers of house, contents, vehicle, travel, commercial, liability and health insurance to review their operations.

“The tone of some of the responses suggested that a number of insurers did not consider conduct and culture to be relevant to their organisation, treating the task as a tick-box exercise rather than an opportunity to genuinely evaluate their business,” the FMA said.

The FMA said:

  • The level of conduct maturity was low
  • Product and policy-holder processes need to be improved
  • Insurers should have greater oversight of intermediaries and their commissions
  • Many boards are yet to back an organisational structure that promotes good conduct
  • Not enough has been done to ensure prompt remediation and address the root cause.