Insurers can't ignore Royal Commission: Mason
Too many life insurers in New Zealand have written off the Australian Royal Commission as just being about banking and nothing to do with them, Financial Markets Authority head of regulation Liam Mason says.
Friday, May 10th 2019, 3:53PM 
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He addressed the Insurance and Financial Services Ombudsman’s conference this week.
He said the Financial Markets Authority had been raising its concerns about issues with life insurance for a number of years.
"The core message that the Royal Commission report has for the financial services industry also applies here in New Zealand – that primary responsibility for misconduct lies with the entities concerned, which requires a close look at the culture, governance, and remuneration of financial services firms."
But he said it had been noticeable, and disappointing, that many life insurers in New Zealand had regarded the Royal Commission as just being about banking, or just about Australia.
“We know that the same sales channels and incentives practices that were dissected in testimony before the Royal Commission have been present in some business models of New Zealand firms. These include soft commissions, high target-based sales incentives, and high-pressure sales.
“We know that our industry also needs to grapple with the production and sale of low-value products, which pose particular risks because of the very narrow circumstances in which they make sense for customers.
“We strongly believe, in both our banking and insurance industries, that complacency is dangerous – that a misplaced sense that these problems are not our problems, is a sure fire way to ensure that they become just that – to the detriment of our markets, our firms, and our people.”
He said the Financial Markets Authority and Reserve Bank had issued guidance to insurers in the last week which set out the recommendations from the Royal Commission that the regulators thought they needed to consider as part of their gap analysis due by the end of June.
“If I were to sum up one of the core problems that we found [in the conduct and culture report], I’d say it was a lack of looking…
“In particular, the review told us that the conduct issues we had been highlighting had seen little sustained response at management and board level. There was a lack of leadership in conduct and culture – the tone from the top was missing.”
Life insurers were not asking questions about conduct, there was little evidence of an institutional focus on service the customers and there was a general lack of oversight of advisers.
Accidental death cover, specified injury cover, funeral cover, guaranteed-acceptance products and credit card repayment cover were particularly poor value.
"We also saw clear evidence of poor outcomes for customers from some of these products. Of concern, we see some are being sold to customers without their understanding of the limitations.
"A line we heard from some insurers was ‘some insurance is better than no insurance’. When it comes to some of these products, we simply do not believe this position is always valid."
Mason said the Financial Markets Authority and Reserve Bank had been engaging with the boards and chief executives of life insurers in recent weeks.
"We have had frank and open conversations, and I think that many see, as we do, that we have an opportunity in New Zealand to address the issues that we’ve uncovered before they lead to incidents that erode public confidence in the industry – before we find ourselves where Australia is today. I’m encouraged by this."
He said boards and senior management needed to take ownership of customer outcomes, embed conduct and culture in their strategy and embed a "no-blame, speak up" culture that encouraged staff to report conduct issues.
"New products should be designed to deliver good customer outcomes, while old products should be reviewed to ensure they remain relevant and deliver good customer outcomes. Customers should be proactively encouraged to consider whether their product remains suitable. All incentive programmes, both internal and external, should be reviewed. Public expectations of financial services providers have shifted. Good customer outcomes have got to be front and centre."
Mason said, if the regulators did not think there was enough progress or urgency in reform, they would take more action.
"The period coming up is one of change. Change for all of us - for the industry, for the regulator, and we expect, for consumers also. There will be challenges for you, adapting to new laws on financial advice, to the expectations we have set for you, and however, the government decides to tackle the gaps in the regulatory framework. There will be challenges for us, as we take on the regulation of all financial advisers, and our role in any new framework.
"But we are all here because we care about financial services. The decisions we all make to protect our health, our wealth and our financial security through insurance are among the most important decisions we need to take in our lives."
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Does he mean: the benefit provisions are so restrictive virtually no claim would ever qualify for payment?
Does he mean the premium collected is so much in excess of that needed to pay claims that the price is wrong?
Does he mean there is no need that the policy can satisfy?
Let's consider funeral insurance, why is this bad value? We know people die so it can't be about insuring things very unlikley to ever happen to us. Is it because it costs more than underwritten life insurance (it does generally cost more because it is guaranteed acceptance, Which is a good thing for clients who never had life cover they can hold on to and have bad health, they can still get some cover, it but it does mean more claims and higher premiums). Does he have actuarial evidence to show unacceptably high premiums after taking claims into account?
Perhaps he doesn't like the fact that in some cases premiums paid exceed benefits because clients live too long? If so, he doesn't appear to understand the essential principle of insurance, the healthy subsidise the unhealthy, some pay their whole lives and never need to claim while others claim and can be paid millions, after paying only a few premiums.
Any insurance taken for the wrong reason is poor value for money but is it poor value for money if I pay income protection premiums for 40 years and never become disabled and so never claim?
Is it poor value for money if I pay house insurance and my house is never damaged by fire, earthquake etc?