Regulatory change needed, or halt to AMP Life sale, policyholder says
An AMP Life policyholder says the sale to Resolution Life should be stopped if regulation cannot be changed to provide more protection for its customers.
Monday, June 29th 2020, 10:08PM 
6 Comments
Geoff Bascand
Last week, the Reserve Bank approved the sale in a revised arrangement. It followed an 18-month review process.
Once sold, AMP Life will be in “run-off” and no new policies will be written.
“A bespoke trust model has been established that ensures supervisory objectives are better met, future industry dynamics are generally more positive, and there is additional protection in the event of insolvency – one of the key risk considerations that we have been seeking to mitigate,” Reserve Bank deputy governor and general manager for financial stability Geoff Bascand said.
The trust is required to hold capital and assets in New Zealand that help provide long-term security for policyholder benefits or investments, where relevant.
The trust will be under the management and scrutiny of relevant officers in New Zealand, who have appropriate influence and authority in respect of the New Zealand operations, for the purpose of securing equity across all policyholders.
In addition, the model will see the establishment of a new, locally incorporated insurer Resolution Life New Zealand (RLNZ). The RLNZ board will have a majority of New Zealand resident, independent directors. RLNZ will act as trustee to the trust and will effectively manage the assets held in the trust.
But policyholder Andrew Body said the deal was a concern.
He told media there was very little information available to policyholders about the purchase, which they had no choice to participate in.
While Resolution Life would have to honour existing AMP Life policies, it had no reason to maintain goodwill because it did not want to attract new customers – and those who had policies could be unlikely to want to risk losing cover by moving to another insurer.
The Reserve Bank was worried about solvency and not anything else, he said, and the Financial Markets Authority had not had a chance to apply a conduct lens.
He told Good Returns he wanted an urgent review of the Insurance (Prudential Supervision) Act. “If we can’t get a better regulatory environment then I think it needs to be stopped. If we can get better regulation then I’m ambivalent.”
He will address the Finance and Expenditure Select Committee on Wednesday.
The Reserve Bank is reviewing the act but this will not resume until next year and is expected to take two or three years.
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Let me explain: when the wind is on the industry's shoulder (as it has been arguably for much of the past 30 years), there is little risk of suppliers collapsing (yeah yeah - finance companies granted). Now the the world is topsy turvy, risk management is/should be firmly back on the agenda. All industry participants should look very closely at their providers and ask the question whether their business is viable. That includes the insurance providers (which I know nothing about), and the funds management community (especially those providing KiwiSaver gateways).
Poor form AMP, but not the first time.
I have commented elsewhere that this is not a great thing for policyholders in the long term. Short term not so much.
The lack of new product development and new business will result in two things. The existing coverage becoming stale against the advances in medical technology and changes clients need to make become ever more difficult to action, and they go elsewhere with all of their coverage.
With inforce business, insurers have two levers, premiums and claims management. While the known risk is there, over time this becomes distorted and problematic for both the insurer and the policyholder.
As healthy lives depart for new products there is less premium for what results in an increasing claim rate against a diminishing premium income. And while this is against the support of reinsurance, there are still the operating costs that sit on the business that premiums need to support to run things and provide a return to the new shareholders.
And with this, two things happen, premiums increase at a higher rate, and claims management becomes harder. First, it is what would have been marginal claims that got paid becomes marginal claims that get declined. And this progressed through to more complex processes that result in making claims or getting claims paid just too difficult for clients and policyholders.
I see it today with medically compromised people where getting the claim form completed is too hard, let along the medical tests and exams to support the claim, put this on steroids and this is what you see in AMP's future for claims.
For the investor, the return on investment is money to them not claims paid to clients. Contractually they do need to pay valid claims, it is how this is done that will become the challenge.
And this is where the lack of new business is the missing link. The business of attracting new clients means that providers have to play nice with claims, as advisers have a choice and an insurer that is difficult at claim time becomes a pariah and advisers actively move and place clients elsewhere.
I may sound cynical, but I have seen the insides of insurers and the interesting decisions they make. It's not that the people are evil or bad in any way, but more the layers of decision making and demands placed on the business at every level.
The Shareholders say x% return
The Board says income is x and expenses are y, this is the gap that needs to be created for profits
The CEO says to price the book for this and make it more efficient
The Actuary says this is what the premiums need to be
Claims are put under pressure to meet financial budgets on expenses
Operations implement premium changes and have to deal with restricted budgets on headcount. Service levels drop as a result.
Claims managers become more picky on medical history and evidence, and ask more questions and increase requirements from policyholders.
And policyholders pay more and have more difficult claims.
But I'm cynical and this deal is all about shiny happy people ;)
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Now this, just for a return to shareholders. Come on where is your integrity.