New Zealanders are still being ripped off by general insurance companies, a review has found, and customers are being told to expect refunds as a result.
The Financial Markets Autority (FMA) review found general insurers aren't prepared for new legislation that requires them to establish systems and processes to ensure there's good conduct and fair treatment of customers. The Financial Markets (Conduct of Institutions) Amendment Bill will require banks, insurers, and non-bank deposit takers to be licensed in respect of their general conduct towards consumers. The licensing regime will be monitored and enforced by the FMA.
They will also be required to establish and maintain effective fair conduct programmes, comply with this programme, and comply with regulations that regulate incentives.
According to the new FMA report, called Insurance Conduct and Culture: Fire and general insurers update, summarises responses New Zealand general insurers gave to the Life Insurer Conduct and Culture review. This review was undertaken by the FMA and the Reserve Bank of New Zealand (RBNZ) in 2019.
It was found that fire and general insurers - those who provide house, contents, vehicle, commercial, liability, travel, and health insurance - have a "poor" understanding of and commitment to good conduct and culture practice.
The report found only two out of 42 insurers were meeting expectations - revealing many cases of overcharging and even double charging.
FMA banking and insurance director Clare Bolingford told The AM Show some customers should expect refunds as a result.
"We believe, from the information we've received from insurers, that there are thousands of customers that may have been overcharged or not received discounts that should have been applied to their policies."
Insurers were asked to review their operations to ensure there were no material conduct issues and to demonstrate good conduct in their dealings with consumers. FMA says the responses were "poor", with only two out of 42 insurers - IAG and Medical Assurance Society - meeting expectations.
FMA says the majority of insurers didn't complete their reviews to the appropriate level, with 95 percent of responses considered "inadequate" or "deficient".
Bolingford says while new legislation isn't in place yet, core conduct standards should apply across the financial sector.
"We've made this point repeatedly over several years and provided various resources and published reports for this section of the industry to measure themselves against," she says.
"Prior to our enquiries, many firms claimed they were confident no significant issues existed. But this review has revealed a number of instances of poor conduct."
The review also found many insurers fail to actively monitor product suitability, fail to effectively withdraw poor value or legacy products, and have overcharged some customers.
Examples of conduct that requires remediation action as a result of the review includes insurers double-charging customers several times, not giving customers promised multi-policy discounts, and significantly overcharging some premiums due to poor IT systems.
The FMA report found the sector isn't prepared for the Bill. Bolingford says some insurers will need to carefully consider what they need to do to meet the proposed requirements for a licence to operate under the new conduct regime.
"They will need to ensure that their products and services are clearly understood by customers and suited to their needs," she says.
FMA says key findings of the review are:
- The level of conduct maturity was low, with some insurers demonstrating they didn't see conduct and culture as relevant to their organisation
- Product and policy-holder processes need to be improved
- Insurers need to have a clearer line of sight on commissions paid to intermediaries, including whether they are fair and reasonable to customers and understood by customers
- Insurers should have greater oversight of how intermediaries are selling and managing the insurers' products
- Many boards are yet to support the development of an organisational structure that promotes good conduct, rebalances shareholder and customer interests, and sets an appropriate conduct risk appetite
- Not enough has been done to ensure remediation activity is completed promptly and addresses the root cause of issues.
The Insurance Council of New Zealand (ICNZ) says it acknowledges the need for constant improvement of the sector.
Chief executive Tim Grafton says "much improvement" is needed before the Bill comes into force as expected in early 2023.
"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."
He says it's important to note that a lot has been done since the review was undertaken in 2019 to improve systems and customer outcomes.
"We do not believe that the report reflects the current state for ICNZ members.
"Our sector is fully committed to good customer outcomes as seen by the multiple responses to customer vulnerability arising during and from the COVID-19 lockdowns."
He adds that insurers must continually earn the trust and confidence of customers by making improvements across all aspects, including governance, systems and processes, products, and distribution.