FMA and RBNZ release findings on insurers’ response to conduct and culture review
The Reserve Bank of New Zealand (RBNZ) and Financial Markets Authority (FMA) today released their findings on life insurers’ responses to the joint Conduct and Culture Review.
The FMA’s release is available here.
Who needs to read it?
The findings are relevant to those in the insurance industry, including those non-life insurers currently working on their own reporting to the RBNZ and FMA. It is also more broadly relevant to all those financial markets participants dealing with conduct and culture issues for their own businesses.
What do the regulators say?
Sixteen life insurers were previously asked to provide work plans outlining the steps they will take to improve their existing processes and address the regulators’ earlier findings and recommendations.
Overall, the regulators were disappointed by the responses. According to both FMA and RBNZ, significant work is still needed to address the issues of weak governance and ineffective management of conduct risk identified in the regulators’ report earlier this year.
According to Rob Everett, FMA Chief Executive:
“While we’re disappointed, we’re not surprised as the responses confirm what we found in our original review. It’s clear that progress has been slow and not as far-reaching as required. Some providers have started work to identify the customer and conduct issues they face, others have not provided any detail on this.”
Insurers also identified at least 75,000 customer issues requiring remediation, with a value of at least $1.4 million. Some of the new issues identified included:
- Overcharging of premiums and benefits not being updated due to system errors, human errors and under-reporting of deaths.
- Poor customer conversations overlooking eligibility criteria and poor post-sale communications, which lead to declined claims and underpayment of benefits.
- Poor value products were identified, where premiums charged were not fair value for the cover provided.
Sales incentives and commissions
The FMA and RBNZ have also committed to report back further on staff incentives and commissions for intermediaries, indicating these issues are still very much under consideration.
According to RBNZ Governor Adrian Orr said:
“Good governance within insurance firms requires the effective management of conflicts of interest. We need to see much better systems and controls in place to manage the inherent conflicts where advisers or sales staff are offered incentives to sell or replace insurance policies.”
According to the regulators, those companies that have not undertaken comprehensive systematic reviews of policyholders and products have been asked to complete further reviews of their systems to identify issues, and to develop mature plans to respond and remediate any of their findings. These plans must be completed by December 2019.
The FMA and RBNZ will continue to monitor how the insurers are responding to recommendations and implementing their work plans.
If you have any questions in relation to RBNZ’s or FMA’s reviews or conduct and culture issues generally, please contact one of our experts.