Insurance conduct regulation's missing piece
More oversight is needed of insurance companies’ conduct, to fill a gap in regulation of the New Zealand market, one commentator says.
Wednesday, August 29th 2018, 6:00AM 
1 Comment
by Susan Edmunds
As part of the review of insurance contract law, currently under way, the Ministry of Business, Innovation and Employment has indicated that It wants a single entity to regulate the financial services sector, including a specific focus on insurance conduct.
It said, while the Reserve Bank, Financial Markets Authority and Commerce Commission each had responsibility for parts of the industry, there was no one charged with overseeing insurers’ and advisers’ conduct through the entire life cycle of an insurance policy.
David Whyte, chairman of the Lifetime group, said such a move would have a big impact on the sector.
“There’s a gap in the legislative and regulatory structure at the moment that it doesn’t address specifically the conduct of insurers.”
While the Reserve Bank would look at their solvency and the FMA their advice processes, there was a piece missing, he said.
"It's a logical step forward."
Partners Life managing director Naomi Ballantyne was ambivalent. She said it would be helpful to have someone with specific industry knowledge and understanding of the complex contractual arrangements tasked with providing oversight.
Without that knowledge, insurance was bundled in with other financial products, she said, and people talked about "switching" between policies in the same way you might a KiwiSaver account or power provider.
But there were also concerns about whether such a regulator would be sufficiently resourced to police conduct in a way that consumers would expect and whether there might be a risk of it creating work for the sake of having work, which would damage the industry.
Russell Hutchinson, of Chatswood Consulting, said the FMA looked to have put its hand up for the job with its recent work.
To give it the role would resolve a number of problems for insurers and consumers, but it would have to be well-designed.
There was scope for improvement, particularly around preventing unsuitable products being sold. "The things that could change could change quite well."
But if good conduct meant insurance was always clearly suitable for each client, there was a danger that in order to meet that requirement, every sale would have to involve advice. That would remove the direct channel from the market.
Adviser Jon-Paul Hale said it would make sense to have integrated regulation.
“Insurance is an integral part of financial services not a product that operates in isolation. Thinking of the interaction between house insurance and mortgages being settled and mortgage insurance that interact with the mortgage and finance products. An integrated approach is more likely to provide less siloed isolationism and more desirable outcomes with clients.”
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Lifetime Group Ltd is not a Dealer Group – it is a fully corporatised financial services advice entity with a DIMS license, and provider relationships held at corporate level.
As non-executive independent Chair of the Board, I certainly ain’t “the boss”. This title is more appropriately ascribed to Peter Cave our Managing Director who has full Executive responsibilities across the Group.
Furthermore, any views expressed are my personal opinions and do not represent any organization with which I am associated.
If MBIE wants a single entity regulating the financial services sector, the duties split among the Commerce Commission, RBNZ, and FMA will have to be redrawn.
At present, as the IMF pointed out in their 2017 Report, the regulatory structure lacks adequate supervision of insurance provider activities. That is, we are not up to internationally accepted standards as defined by the IMF.
As sterling a job as the respective entities carry out, the resources, expertise, and experience do not currently exist within either RBNZ or FMA to deliver on the objective of effective supervision and regulation of the insurance sector. So if MBIE wishes to see a single regulatory entity, substantially more funding will be required. Extending the duties of the existing entities will merely spread their resources too thinly and detract from their ability to deliver on their current strategic objectives.
To avoid this potential dilution, subrogating the RBNZ, FMA, and Commerce Commission areas of regulatory overlap makes sense. The scale and scope of the Fire & General and Life Insurance sectors is huge and to respond appropriately to the IMF's concerns a separate entity dedicated to all matters regulatory pertaining to the insurance industry may well be contemplated.