The Government says it will fast-track customer protection measures after a damning new report into the New Zealand life insurance industry said it puts profit ahead of people.
The report, released on Tuesday by the Financial Markets Authority (FMA) and Reserve Bank (RBNZ), looked into how 16 companies operate.
- Poll: Do you have life insurance?
- Insurance industry could be set for an overhaul
- Company refuses to pay life insurance to terminally ill man
It found "extensive weaknesses" in life insurers' systems, and a "lack of focus" on customers. There were "several instances of poor conduct" and a "small number of cases of potential misconduct".
Some customers were charged premiums even after their policies had expired, were given incorrect information, or were not told about higher charges or reduced coverage when they renewed or changed their insurance policies.
"Overall the report shows the life insurance sector in a poor light," FMA's chief executive Rob Everett said in a statement.
"Life insurers have been complacent about considering conduct risk, too slow to make changes following previous FMA reviews and not sufficiently focused on developing a culture that balances the interests of shareholders with those of customers."
Commerce and Consumer Affairs Minister Kris Faafoi says Cabinet on Tuesday agreed to get rid of sales incentives.
"Incentives such as overseas trips and loaded up-front commissions can cause a conflict for the salesperson," he says.
"This, with the findings from the earlier report on banking conduct and culture, mean that we have to take action. We plan to release a consultation paper on the changes by May and introduce legislation later this year."
Minister of Finance Hon Grant Robertson says it is clear that the Government needs to act on regulation and conduct of financial institutions, including an appropriately resourced regulator to monitor the conduct of banks and insurance companies, with strong penalties for breaching duties.
Key report findings:
- Limited evidence of products being designed and sold with good customer outcomes in mind
- Some insurers did little or nothing to assess a product's ongoing suitability for customers
- Sales incentives structures risk sales being prioritised over good customer outcomes
- Where sales were through an intermediary, there was a serious lack of insurer oversight and responsibility for the sales and advice, and customer outcomes
- Remediation of conduct issues is generally very poor, with insurers slow to respond to issues and in some cases not sufficiently remediating them
Reserve Bank Governor Adrian Orr says the industry needs to "act urgently and undergo major change" to address these issues.
"Public trust in life insurers could be eroded unless boards and senior management transform their approach to conduct risk and achieve a customer-focused culture," he said in a statement.
"Ultimately insurers need to take responsibility for whether customers are experiencing good outcomes from their products, regardless of how they are sold."
The Financial Services Council, whose members represent 95 percent of the life insurance market in New Zealand, says it accepts improvements need to be made.
"We will now work through the issues highlighted in the report and respond to the FMA and RBNZ within its timeframes with our action plans," says CEO Richard Klipin.
"Conduct, culture and ensuring great consumer outcomes is paramount. We also accept that action in some areas was not taken as quickly as desired and that has been a source of frustration for the FMA and RBNZ."
However ACT Party leader David Seymour calls the insurance report, and previous banking inquiry, "time and money-wasting exercises".
"This is the second time in six months the Reserve Bank and the Financial Markets Authority have stepped outside their remit to deliver a lecture to the financial industry," he says.
"The Reserve Bank in particular should quit lecturing private businesses on how to look after their customers and focus on its central task of keeping inflation under control."