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[The Wrap] Regulators say they are not trying to demonise life insurance

This week we witnessed one of the biggest take downs in the history of financial services in New Zealand. But was it warranted?

Friday, February 1st 2019, 7:46PM 6 Comments

Rob Everett, FMA

The FMA/Reserve Bank Conduct review of the life insurance industry effectively gave the sector a fail and had little positive to say about it.

A key theme is that insurance companies and advisers aren't interested in customer outcomes. Insurance is all about sales and commissions, they say.

Basically the regulators tarred all insurance advisers with one brush. This sort of scaremongering is unwarranted. Most advisers I know are trying to do the right thing for their clients.

One of the things that is really hard to reconcile with the report is life insurance is about protecting people and therefore very focussed on customer outcomes. To suggest companies are just flogging product and then forgetting about it doesn't add up.

The report acknowledges this as one of the positive things in it related to comments about how life companies managed claims - which it said they did well.

Surely that is a sign they are looking after customers. Despite what the mainstream media will tell you, most claims do get paid. And the quantum of payouts in a year, across the sector, runs to billions of dollars.

A couple of the key premises of the regulators' argument was that churn, especially after the clawback period has passed was a significant issue in the industry.

It seems incredibly fixated on this yet there isn't a lot of evidence to suggest there is customer harm.

The areas of poor customer outcomes wasn't product sold by advisers rather it was products like credit card insurance.

Likewise the regulators don't like commissions, although there appears a lack of empirical evidence that customers are being sold the wrong products. Yes there is a good argument that the way commissions are structured should change. Models used by the likes of Fidelity Life and Asteron where they pay lower upfronts and higher renewals are good and maybe they should be used more across the industry.

No doubt there will be changes but I reckon it's a good bet to say that life companies's distribution costs will stay the same (or won't fall). They will just find different ways of spending the money. 

It's a little like the decision to ban letting fees in the property management industry. People will find a way around these sorts of bans.

Slightly redeeming to all the comments made were some from FMA chief executive Rob Everett towards the end of an hour long press conference. 

He said the regulators didn't want to "demonise" life insurance (not sure whether that goal was achieved) and that life insurance "is best sold with some degree of advice".

Tags: Opinion

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Comments from our readers

On 1 February 2019 at 4:08 pm Dirty Harry said:

the peanut gallery just became interesting

On 1 February 2019 at 6:23 pm RWAW said:
Not trying to demonise the industry? Since Everett has arrived all he has done is promote his own agenda (which seems to be that the industry is full of crooks).

All this to justify his massive and unwarranted salary. The same people presided over a review of the banks behaviour in this country and basically gave them the big tick of confidence.

Given they claim that the reviews were instigated after the Royal Commission in Australia's findings on bank conduct, and that those same banks are operating here, how can they claim to have any credibility after the outcome of their review.

Make no mistake, this is a witch hunt. I have read the report and sure, there are a few cases which should be remedied, however, given the nature of their findings I would have thought the banks and the 2nd and 3rd tier Insurance providers should have been singled out and named for their conduct.

Of course this was never the intention of the review. The intention was to throw all independent Insurance Advisers under the bus and pander to the academics who have never run a business and would never understand the costs associated with running their own business. I am sick and tired of these employees telling me what I should be paid, I am sick and tired of them telling me that education = honesty and most of all I am sick and tired of these people undermining an industry that I have been involved in and passionate about for 25 years.

Do your job fellas and help promote our wonderful industry that helps people in their time of most need. Your job is to promote public confidence in financial services isn't it? Or are you just trying to take the spotlight off Kiwibuild like good little employees should do for their masters?
Rohan Welsh
On 2 February 2019 at 11:39 am JPHale said:
Rohan Welsh I'm only a few years behind you, I reiterate everything you have said.

The sad reality is thousands of individuals running their own operation aren't making the same coherent noise that a bank of 3000 employees does.

For some reason, because you run your own business you are seen as inferior to a CEO of a corporation.

Yet the small business operator has a better understanding of what is happening in the real world and have significantly less middle management politics getting in the way of the real issues.

And our industry professional bodies also seem to be ignored with a significant lack of engagement with them as well.

If the government was genuinely interested in positive change, rather than points scoring, they would be talking to all players and not just the fat cats with massive salaries.
On 11 February 2019 at 12:36 pm LNF said:
Read the Damien Grant column in the Sunday Times. These people are out of order and what I would like to know is what idiot is driving this manufactured rubbish. Also where are the industry leaders rubbishing this whole nonsense
On 11 February 2019 at 6:41 pm First Time Caller said:
Mid 2018 I had a client who had $200,000 Level To Age 80 Life Cover issued in 2004, currently 46 years old. On the same policy the client had Disability Cover with a 4 week wait. He was approached by a bank who ascertained that he needed $290,000 Life Cover, and they were able to do a cheaper policy by doing a 13 week wait. The client and I approached the bank and asked why the Level Premium Life Cover was not maintained as its actually cheaper today (and for the next 34 yrs) whist placing the additional $90,000 onto a new policy. Their response was "I totally understand what you mean about the level premium but you needed more life cover so this wasn’t taken into account". Quality stuff
On 12 February 2019 at 10:57 am Murray Weatherston said:
@First Time Caller

Quality stuff? I'll answer your rhetorical question - Nah.

Did your client go with the bank, or stay with you?

If they went with the bank, then I suggest a 2 pronged strategy .

First see if your client is prepared to make a complaint to the bank, focused entirely on the replacement of the base $200,000 life cover. [I don't see a case for arguing about the extra $90K death cover, nor about the change in wait period on the Disability.] Hold their hand through the complaints process - I have helped 2 clients this way - in each case the bank played dirty pool - the first one resulted in a draw but in the second, a claim for $200,000 we won a 67% repayment via the BOS. I was disappointed we didn't get 100% but the client is forever grateful.

I recognise your client might be reluctant to take on his bank - there aren't many Davids willing to take on Goliath.

Second, you on your own motion should make a formal complaint to the FMA, and see what they do. This complaint wouldn't need the co-operation of your client.

If we don't stand up every time we think we see injustice, advisers will continue to be steam-rollered.

Update us here.

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 2.89 3.25 3.39
ANZ Special - 2.29 2.69 2.79
ASB Bank 4.45 ▼2.29 2.59 2.65
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - ▼2.29 ▼2.59 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 ▼2.89 ▼3.19 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online 2.50 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.45 2.45 2.65
Kainga Ora 4.43 2.93 3.07 3.24
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 ▼3.20 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 ▼2.35 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 3.20 3.24 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
Lender Flt 1yr 2yr 3yr
SBS Bank 4.54 2.99 3.09 3.15
SBS Bank Special - 2.49 2.59 2.65
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - 2.09 - -
The Co-operative Bank - Owner Occ 4.40 ▼2.29 ▼2.59 2.79
The Co-operative Bank - Standard 4.40 ▼2.79 ▼3.09 3.29
TSB Bank 5.34 ▼3.09 3.29 3.59
TSB Special 4.54 ▼2.29 2.49 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
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Westpac Special - 2.29 2.69 2.79
Median 4.54 2.89 2.99 2.97

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