FMA aware of but won't comment on Southern Cross benefit removal

I have no doubt the FMA has a responsibility to review and investigate this.

True, Southern Cross has a right to do what they like with its policies, and the consumer has to put up with it.

However, if you reference clause 6.2 of Southern Cross' terms and conditions (which you can access on their website) they state they will give 30 days notice of this:

6.2 At any time Southern Cross may, by giving 30 days prior notice, change or update which
Healthcare Services are eligible, the scope of cover, and terms and conditions of this Policy.

And 6.3 states they will communicate it

6.3 Any notice required to be given by Southern Cross under clauses 6.1 and 6.2 will be given in writing (including on the Southern Cross website or by email) in accordance with clause 18.1. The Policyholder is responsible for advising Dependants of any changes to the Policy.

*18.1 stipulates communication methods and updating of details.

So when you reference the communication to policyholders on the 22nd of November 2020 and find this statement:

Administration of non-cancer IV drugs change
IV infusions for non-cancer indications were previously covered under specialist consultations or the non-surgical hospitalisation benefit. They are now covered under the separate IV infusions (non-cancer) benefit, providing up to $1,000 per claims year for Medsafe indicated drugs.

You could be forgiven as a policyholder, adviser, or a product researcher that there was no notice of the non-surgical hospitalisation benefit being removed.

There were also a bunch of other "new" things announced in that update.

Fundamentally this here is the problem:
* Southern Cross did not meet the requirements of their own terms and conditions in communicating the removal of a $60,000 per annum benefit.
* The execution of this is commendable for its success in being missed by everyone for the better part of three years. However, it breaks a few more rules around culture and conduct that even the FMA has had something to say about.

Then we have the Fair Trading Act, unfair contract terms that AIA is citing to break contracts and make terms and conditions worse for their policyholders. Doesn't that apply here?

Though that's technically incorrect, as the UCT for the FTA bit isn't the bit that operates here, it is the FMCA 2013, the FTA on steroids, that applies instead of the FTA.

There is customer harm from this action, and while Southern Cross can chomp at the bit about the suggestion of them avoiding Covid hospital claims, the timing and execution of this two years after they said they decided this, just leaves a bad smell in the air.

Especially when they rolled out other changes decided at a similar time far earlier, the above comment suggests they are back peddling and covering up with spin rather than fronting up and facing the music.

I hope they documented all of this for the FMA when they come knocking, as it will be interesting if they haven't got the documentation required as they have been operating.

As I have said elsewhere, time for Southern Cross to front up, fall on its sword, put things right and sort out its impacted policyholders. The fundamental breach of trust this represents is not something we can put up with as an industry.

An insurance policy is a promise to turn up and put right the loss when the time comes in exchange for a sum of money to do so.

Broken promises do not make for confidence in our industry by consumers. One of the base points the FMA is here to ensure happens!

Southern Cross FSP43787 is not just an insurance provider.
They are also a FAP with nom reps.

They are subject to the same rule as you and me - then and now.

In November 2020 they were a QFE. They had nominated reps who were giving advice to new and existing clients. They were subject to the code at that time.

Since 10 March 2021 they have been a FAP and subject to the standard conditions of their FAP licence, and the current code.

This means FSLAA applies.
And FMCA 2013.

This means the Code applies to them.
It also means s431 I through N applies.

They have breached Code standards:
1- by wilfully highlighting certain "features" being added while omitting the removal of a benefit, in their internal and outbound comms they have failed to treat clients fairly.

2- such wilfully misleading and deceptive conduct, including deceiving ratings/research providers who gave credit and/or ratings for a benefit that was not being provided is the opposite of acting with integrity

3- by making statements that described certain additions while omitting the removal of an important feature the resulting advice by direct comms and by staff dealing with claims and inquiries must be deemed to have been unsuitable.

Southern Cross has also breached S431P
their statements were misleading, likely to mislead, and the omission was materially adverse from the point of view of the client.

No matter how you cut it, Southern Cross's own actions have created a world of problems for themselves.

They acted like cowboys.
And if I remember right, the FMA once said "cowboys belong in the movies and not in financial markets".
(Yes, I remember and I'm never going to forgive them).

Thank you AP, I've filled enough inches on this, appreciate the pick up on this angle to close the door on the issue.

I think this about covers the FMA case, time to see where it goes.

If this isn't picked up by the FMA with SX we all have to wonder what the FMA is actually regulating.

The FMA is certainly going to be busy. Wait until they start looking into the dodgy dealer groups that are not disclosing to the consumer that they are profiting off there inhouse referral products for insurances, kiwi savers and second tier loans sold to customers through their adviser networks.
Disclosure? I don't think so.

Interesting observation JP.
Has the FMA actually ever proactively taken action or do they rely on self-reporting, complaints, or fraud after the fact? FMA fees are around $10,000 per week for most fund managers - sounds like value for money - I wonder how this meets their own reasonable fees test. It seems that a passive regulator's fees should reflect their management style.

@valkyrie6, the only way to check this is dig in the file and see. As I have said elsewhere, you can't determine the intent behind the advice until you see the file. Similar here with disclosure.

My experience with being a 20-something and having a regional manager who had been around, the world has a history of repeating itself. We're far enough down the track now that BlueChip is a distant history many younger ones won't know of but operates in much the same way you have described. It would not surprise me to find history repeating again...

@GG comments to chew on, and agree this may be a tipping point. Will we see the FMA act and take them to task, or will they not, and we carry on with seeing the fringes picked at and the big end of town doing what they have always done?

Time will tell, but I'm not counting on it being this week or next, or even next month.

JP: I agree with you and yes, I remember Blue-chip and what a mess that turned out to be, I can only hope good honest advisers prevail and that the FMA rat out the dodgy fat cats eventually .

A great case study of why COFI is needed. We'd love to believe that Insurers "put customers and outcomes at the heart of everything they do" without needing a complex regulatory framework, but clearly not. And meanwhile advisers who have to meet a code of conduct and regulated licence obligations are left managing the impact for clients.

I've been lurking in wings on this SX debate.
It seems to me that SX was entitled under the terms of its policies to reduce or eliminate a benfit. Their crime seems to be that they didn't shout it from the rooftops so advisers and research houses mixed the change.
CoFI wasn't in law at the time the change occurred. But even if it was, I doubt that it would have stopped the change - did they treat customers unfairly? Would a regulator tell SX they couldn't do something that they were otherwise legally entitled to do under existing contracts?
That would be a slippery slope IMO for everybody - governemnts able to change private contracts unilaterally. Not in my book.

@Murray. The issue at hand isn't so much their ability to do what they have done. Though they did pick a significant part of the policy to do it.

It is the way it has been executed and then followed through with.

Let's put it a different way. A client who's fit and healthy has a policy, three years ago they had these changes made and they were not advised or highlighted as being removed.

That policyholder hasn't been put on notice of the change.

They have not been given the opportunity to reassess this in the light of the changes, and now a few years later is potentially needing to make a claim on an area no longer available.

It is the missed opportunity for that client to make an informed decision to stay or change that has been taken away from them.

An opportunity that could have resulted in a different product and different cover that covers them as a result. Cover that may have been significantly more suitable than what's in place.

The componding issue here is the ongoing communication, and advice if it's been provided, has not covered the changes and impact on coverage.

Sure they don't want to highlight the negatives, but that's what our advice laws now demand of us. To put clients first which means telling the truth, not lying through omission.

It's up there with say removing the accommodation benefit from house and contents policies and not telling the policyholder.

Or the investment managers moving into say weapons stocks and not advising the change.

It's not that they can't do it, it's that they have not provided the basic communication of the change expected under advice rules.

The other bit; Southern Cross was a QFE under the old rules, making them accountable to the same standards as AFA’s

If an AFA’s gave advice lacking the fullness of disclosure, how would they have measured up under those rules?

This isn't about Souther Cross being able to make the changes. It is about how they did it, and how they broke their own terms and conditions of their own contracts.

Guaranteed policy wordings is the need, but that's not what has been asked for here.

Walking the change back and making it right because SX didn't execute the change as they are contracted to do so is the point.

From there if they still want to make the change, they can, but do it transparently, clearly nu advising clients as the market expects.

@muzz
Didn't hear the whoosh huh?

Cos if you wanna talk about their terms, talk about section 6.

Further to AP's comment, Murray, here's the link https://www.southerncross.co.nz/society/terms-and-conditions