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[GRTV] Good conduct and culture drives out the snake oil

Reserve Bank governor Adrian Orr talks to Philip Macalister about good conduct and culture and what needs to change in the life insurance market.

Thursday, May 23rd 2019, 6:24AM 6 Comments

This episode is also available as an audio podcast. Listen now or download using the controls below:

Orr says life insurance companies are good businesses, but there needs to be a lot of change in how they are run. 

The Reserve Bank and Financial Markets Authority has done Culture and Conduct reports on both banks and life companies and found that the latter was in worse shape than banks.

Orr says the regulators want to see change and their preference is that the change comes from the companies rather than from the regulators. Boards and senior management need to show "self-discipline", he says.

They need to show a "culture that is necessary to take someone's money and put it into long tail agreements which are very complex."

He says the regulators want to "try and drive the snake oil out of it and make sure what you see is there."

Orr says culture and conduct isn't a new fad, but it is a why of demonstrating a product delivers what is written on the packet.

While it found not too many issues in the banking sector "whole concepts of measuring appropriate conduct was absent" in the life insurance market.

He said a big part of the challenge third party distribution. In the regulators' view advisers were being incentivised on volume and churn not customer outcomes.


TO HEAR THE FULL INTERVIEW - Listen to the Podcast here

Full transcript of the interview available here




Tags: Adrian Orr Culture and Conduct Life insurance

« [GRTV] We have to prove we are not the bad guys: Ballantyne[GRTV] Why a four day week is good; Fears about markets »

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Comments from our readers

On 22 May 2019 at 8:32 pm Ron Flood said:
I must say I was very disappointed with the comments from Mr Orr regarding the conduct of life insurance companies. In particular, his comments that insurers encouraged churn by offering incentives and rewards, based on volume of sales.
Mr Orr seems to believe that all replacement of insurance policies is churn.
He mentions that advisers can have long term relationships with clients whereby the client, may change insurers several times over the years. He feels that this is not in the interests of the client, but purely provides income for the adviser.
What Mr Orr may not be aware of, is the fact that for many years, insurers did not pass back enhancements to their existing policyholders. This resulted in advisers changing clients insurances to a new company, to enhance the benefits to them. This is what I would call, providing better client outcomes, something the regulators seem obsessed with.
More recently, companies have started to enhance the products they have on the books, by passing back new benefits. This should result in a lot less replacement business in future.

Commentators have regularly stated, over the past year, that the report on churn did not show a systemic problem, and in fact, only uncovered a small number of errant advisers.

It would appear that Mr Orr has chosen to ignore the results of the report and is charging ahead with an attack on the integrity and honesty of the adviser community.
On 23 May 2019 at 12:08 pm Doggy said:
Not exactly helpful when the head of the RBNZ uses the term "snake oil" to characterise the industry. Damaging, negative. Need I go on any further?
On 23 May 2019 at 1:36 pm JPHale said:
Well said Ron, completely agree and echo your sentiments!
On 26 May 2019 at 5:31 pm Adviser broker 1 said:
Reserve bank seems very supportive of banks against insurer and adviser channel it seems, maybe a conflict of interest within the opinions here.., there is no consideration between...
the quality of product difference between bank offered products and insurers ? What and how do banks make money out of insurance? Ie commissions, profits, overrides, rebates.. would be worth looking at the conduct around replacing a A grade product with a D grade bank product.
As an adviser if you dont give a client the best product, verses best premium structures for their life cycles then your not going to keep customers long term, it's better for the client and adviser to have long term customers. I do understand that there is alot of opinions about all from people all really dont have the full grasp which is the shame. The code, there should be responsibilities of all people dealing with the client with a product rather than just the company or the head as with no responsibility then the quality decreases at the same time of making the knowledgeable veterans exposed.
On 30 May 2019 at 9:16 am Elephant1 said:
I find this an interesting commentary as Mr Orr in January last year , supervised a controlling interest in Fidelity Life . This was in his previous role. He has never declared this, and under his banner, Fidelity Life still offered trips overseas.
One of the major issues that should be attacked are the $3,000,00,000 , sitting in ASB's default funds , nearly three times that of any other player.
On 30 May 2019 at 3:49 pm Paul J Burns said:
Just my fallible take on what's happening in regards to transparency, adviser remuneration and conduct etc, is that the regulatory spotlight is not going to go away soon.

I think the intentions around improving transparency, the conduct of the players (product suppliers and intermediaries alike) and how we're all remunerated is noble, so long as it's in the best interest of the clients and the marketplace.

As such, while it's understandable to call into question the likes of what Rob Orr (and other critics) are saying, the message I'm taking is that it's best to be ahead of what's looming- in order to make the most of the new world.

As such, I'm actually quite excited about the huge opportunities that can be leveraged off all the talk, noise and changes that are coming our way.

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