Financial Markets Authority considering prosecuting life insurers over sales tactics; says 'there will be more remediation, more repayments to consumers'; Commerce and Consumer Affairs Minister warns NZ isn't immune from a royal commission

Financial Markets Authority considering prosecuting life insurers over sales tactics; says 'there will be more remediation, more repayments to consumers'; Commerce and Consumer Affairs Minister warns NZ isn't immune from a royal commission
FMA CEO Rob Everett, RBNZ Governor Adrian Orr

The Financial Markets Authority (FMA) is considering whether to prosecute some life insurance companies over their sales tactics.

FMA CEO Rob Everett told those gathered at the Financial Services Council conference this week that there are ongoing investigations underway over potential misconduct identified in the conduct and culture review the FMA and the Reserve Bank (RBNZ) did into the life insurance sector.

The regulators are not considering taking legal action further to their review into the banking sector.

While Everett reiterated at the conference that the FMA and RBNZ didn’t identify systemic issues among banks and insurers, he stressed that the reviews were quick and mostly dependent on what the regulators were shown and told.

“And the somewhat positive conclusion was balanced by finding processes and practices that were sloppy and were not adequately designed to look after customers,” he said.

“We saw insufficient focus on the risks posed to customers of poor behaviour whether by deliberate conduct or sloppiness.  

“And in the last few months, the follow up work has continued – firms are reviewing their products and their practices. 

“From what we are seeing, there will be more damaging headlines. There will be more remediation, more repayments to consumers.”

Minister Faafoi: If there isn't change, a royal commission could be required 

Commerce and Consumer Affairs Minister Kris Faafoi, in a speech at the conference, said: "We didn’t have a royal commission here in New Zealand but the FMA and the Reserve Bank did find that if we didn’t make changes we could get into the same territory that necessitated a royal commission in Australia.

"Both you and I too do not want to go there."

Faafoi, Finance Minister Grant Robertson and Prime Minister Jacinda Ardern have previously commented that a royal commission would slow the raft of work underway to address issues in the sector.

When the regulators released their report into the life insurance sector in January, they gave firms until June 30 to commit to removing sales incentives and provide feedback and response plans.

The FMA and RBNZ are yet to report back on insurers’ responses.

They in April received responses from banks, and in June confirmed that all 11 had committed to removing sales incentives from frontline staff and their managers.

The plans banks had to provide were around ensuring greater board accountability around conduct and culture issues, prioritising the identification of these issues, accelerating remediation, prioritising investment in systems and frameworks to strengthen processes and controls and strengthening staff reporting channels, including whistleblower processes for conduct and culture issues.

Industry held to standards not yet in law

Everett at the conference said: “I’m sometimes told that New Zealand is different and that the issues seen offshore don’t apply.

“Or – ‘this is about other companies in the industry, you should focus on them, we’re the good guys’.  

“[Or] That high upfront commissions from insurers for sellers of their products are fine.

“Or that they are not fine, but no-one wants to be the first to move. I don’t know whether this is complacency or denial but either way it’s not good.

“We’re also told ‘we don’t know what you want us to do’.

“Well, we set that out (or at least some clear signals) in a conduct guide at the start of 2017.  

“The lack of significant efforts within some banks to make major change and the failure of most life insurers to read, consider and act on that guide or get involved in the preceding consultation was one of the big disappointments I took from our conduct and culture reviews.

“Good conduct is up to you – the industry – providers and advisers. Given what we’ve seen in other countries, I have to ask why you are waiting for us to come knocking.”

Everett said New Zealand was behind other countries, without a regulatory regime for bank and insurance conduct.

“I acknowledge that the FMA and RBNZ have held the industry to standards that are not yet in the law here. However, these standards are surely reasonable and the fact that the industry has not aspired to them on its own worries me,” he said.

“Some of you may simply be hoping we’ll shut up and go away or are waiting for a law change to ensure a level playing field with your competitors. Your response is ‘we can’t or won’t change on our own – you need to make us change’.

“I would warn you to be careful what you wish for.”

The Government is considering introducing legislation to Parliament to specifically cover conduct and culture.

Currently, the Commerce Act and Fair Trading Act are the main pieces of legislation that protect consumers’ interests. General insurer, Youi, was fined for using illegal sales tactics under the Fair Trading Act for example.

The Ministry of Business, Innovation and Employment is considering public feedback on a discussion document it released in April with a wide range of options.

At the most punitive end of the spectrum, it proposed capping commissions insurers pay to the advisers who sell their products, outright banning shonky financial products, requiring insurers to settle claims within certain timeframes and requiring banks and insurers to get ‘conduct’ licences to operate.

However, MBIE’s preference was to use a “principles-based set of duties” to give the law “flexibility”. Acknowledging that this could cause uncertainty, it said these duties would need to be accompanied by more prescriptive regulations.

Faafoi is keen on this principles-based approach.

For more on Faafoi's thinking, listen to this episode of the Newsroom/RNZ podcast Two Cents’ Worth. Interest.co.nz’s Jenee Tibshraeny was on the panel with Faafoi.

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Not life insurance, but I wonder what the FMA or the IFSO thinks of insurers stating that in the event not of their client's making they'll deny due cover?

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12266265

Locketts partner Brian Malone said they'd been told by their insurance company that they wouldn't be covered if the neighbouring property was to cause damage to theirs. Instead, they would have to sue the owners for damages.

That seems crazy. Just went through my AMI Premier house insurance. No mention I can find anywhere that neighbours property damaging mine would be excluded. Is a clause though that covers me if I damage the neighbours house.

Isn't it like third party cover for car insurance. If some one else damages your car, you are covered and your insurance company proceeds against them/their insurance provider. I would assume the same is the case for house/contents insurance.

That's right, in the case I quoted it's the insurance company's job to chase the neighbour (or their insurance company) for any costs/damages incurred, that's what they're paid a premium to do.

The Insurance companies always try to wriggle out of making any payment on claims, except the car insurance, where the record is better. Regulation is weak, competition is non-existent, foreign ownership is near total, New Zealanders are held to ransom in paying the premiums. What a sham...

Insurers are full of nonsense

Agreed.

They co exist alongside banksters.

Our health insurance is going up from $514 to $700 per month, so I've decided I've had enough and am setting up a company to self insure; on health costs for a start.

$700 per month will fund a mortgage up to $240,000. With three additional sibling families coming on board, this indicates we could fund a mortgage of $960,000. Assuming we purchase a property which generates a net return of 4.5% (which is very possible), and we lend at say 3.2% which is currently available, based on a 35% equity position (equivalent to a $1.475 million purchase) this would give us a positive cashflow of $19,175 per annum. This we will use to build on the capital to cover future health costs. With a relatively high equity ratio, this will allow the fund to refinance if a large medical expense (not covered by the State) turns up.

Each sibling will have to provide $130k of seed capital from refinancing their own home, however its a much better investment than paying premiums to overseas companies when the returns are marginal at best.

While this may not be for everyone, I recognise extortion when I see it. And encourage others to investigate there own options.

My health insurance is $800 for 2 people for a year...

The notion of private health care was born with privatisation, which is starting to back fire now.

Splittting the Health care budget between Public and then Private Hospitals has allowed the Private sector to cherry pick.

i.e. privatise the profits, socialise the losses.

Private Care It takes on surgery that pays a profit, and eliminates the costly ones - this is why the screen for pre - existing conditions more and more.

The difficult surgeries are left to the taxpayer to fund, long term stays, psychology, those that have no money to pay.

Problem is, the private sector removes revenue from the high fixed cost public Health care system, and now neither is the winner.

The cheapest Healthcare system is one that covers all, like we used to have before privatisation. The profit remains in the country, not with overseas investors.

Absolutely. I understand that Bank sponsored insurance is now refusing to issue travel insurance to Hong Kong ?
The insurance companies want no risk/yes premium type of situations only to cover, so they can keep on pocketing the money, to hell with protection.
At the first sign of trouble, they close the gates.

Now imagine if some employees of said insurance companies collectively decided to not turn up at work but still draw a salary.

Well, we are waiting with bated breath for those juicy headlines, please hurry, FMA/RBNZ, thanks

Get on an hold a Royal Commission, theres been plenty of evidence come to light in the media and more is bound to surface once the official enquiry calls for testimony. I'd also call for a RC into ACC. I've heard some really disturbing stories about how the corporation behaves.

I suggest they start within their means...with Southern Insurance.....Payout what is owed, by shonkey means is still illegal, if short changing their insured customers.....and keep mum about the facts...

I do believe it is called something like....fraud-u-lent, when cover is displaced by silent means, in such large instances. That it is a Government favoured strategy, speaks......Volumes.

Interesting, on news last night AMI was released from Christchurch earthquake liability by the NZ Taxpayer starting Southern Response.

But isn't this a bailout of a Foreign Owned company by the NZ taxpayer.

Was there a demand for all previous premiums paid to AMI in the preceding years that had a profit component built in for future earthquake cover to be passed from the AMI shareholders to the new Taxpayer owned Southern Reponse ?

I saw Bill English walking out of the office , maybe he has the answer on what the terms of the bailout were.

Rio Tinto was given $30 million by National in the down trun in Aliminium, to stay open.

NZ owned Companies never get these Bailouts in down turns, we suffer the loss.

Maybe all the NZ Tradies who lost out when Mainzeal went bankrupt, (Shipley's attempt at working in the private sector) could ask the Government for a bailout.

Before the NZ Tradies ask for help, they would need to of course get citizenship of a Foreign Country though, because NZ doesn't help its own with bailouts, only the Foreign owned get that privilege.

Yes the Nats were pretty handy at handing out dollops of taxpayer funds to their corporate interests. I guess thats what 'business friendly' really means. The ridiculously generous kiwifruit growers PSA compo fund was totally gamed by many growers who used it as a fund to exit the industry, develop and subdivide their BOP orchards and make millions in capital gains in the process! Don't forget Steven Joyce helpfully giving his old radio company Radio Works a loan when they couldn't afford to renew their broadcasting licenses...meanwhile vulnerable kiwis were piling up on the sidewalk or sleeping in cars because their ACC or WINZ support had been unfairly removed.

Ah yes, Joyce, Joyce, good at looking after his old company Radio Works and seeing what they needed to avoid losses.

Joyce also sold Hillside Engineering to Foreigners so now Railway has to contract rolling stock upgrades to a Foreigner in the supply chain.

Went for Chinese trains, that many didn't work when they arrived, over a Dunedin Tender that was dearer by over $50 million dfifference in tender.

But Joyce omitted to tell the Treasury (or did but kept it quiet) and failed to calculate that the PAYE tax and GST benefit and job security in Dunedin if trains were built there would earn $100 - $200 million to the IRD and DSW from unemployment benefit savings. With a huge Multiplier Effect to other areas in NZ.

The Dunedin contract for the train build under a feasibility value for money analysis, by far outweighed the savings of $50 million on the Chinese contract for trains.

He can even be quoted as saying Kiwirail has to make decisions and award contracts that are right for Kiwirail.

Wrong Joyce, Kiwirail is owned by NZ, therefore Kiwirail has to make decisions based on what is right for NZ. If a benefit to other Govt Depts or NZ taxpayers exceeds the Chinese contract savings, you choose NZ everytime.

Under group accounting, this is very obvious. NZ is a Group.

Question is, who is vetting the Politicians and Treasury decisions that are costing NZ taxpayers Billions in losses now each year from destruction of our production possibility frontier.

They did the same with BNZ; sold the good business to offshore interests, and socialised the loses at home. If I remember another dubious Sir Fay was on their board, and through Capital Markets sold their shares just before it tanked. Had to be some insider trading there, I would have thought. No coincide he's hiding out on an island, while Richwhite disappeared (hopefully the rats got him) never to be seen again. They know about the pitch forks, and now only get to dine out on their egos.

Governments and politicians are not to trust in business, and Jonkey was/is as crooked as they come.