It was reported last week that a South Auckland man, Ailepata Ailepata, was denied a $100,000 payout for gastric cancer because their New Zealand Home Loans broker moved their trauma cover from Westpac to Fidelity Life.
The amount of cover was reduced and when they went to claim they were reportedly turned down by Fidelity Life because he did not disclose “impaired glucose tolerance” when the policy was taken out.
The family told media they felt betrayed.
Fidelity Life said on Tuesday that it was still in discussions with the Ailepatas and their representatives. “We prefer not to comment further while these discussions are ongoing.”
NZ Home Loans was reviewing the case.
The Financial Markets Authority, which has previously highlighted concerns about insurance “churn”, said new rules could address the situation if it were to arise in an advice situation again.
The Conduct of Financial Institutions Bill, which is currently before Parliament, introduces a new conduct licensing regime for banks, insurers and non-bank deposit takers, regarding their general conduct. Licensed institutions will need to implement effective policies, processes, systems and controls that provide for how they will ensure the fair treatment of consumers.
“While the bill does not contain specific provisions on replacement business, once the new regime is in place we would expect to focus on insurers’ conduct through the lens of the systems and processes they have in place to take responsibility for customer outcomes, where intermediaries are involved in the sale of its products.”
FSLAA, which takes effect next March, will mean all advisers need to comply with the code of conduct. That includes an obligation on anyone who gives financial advice to ensure it is suitable for the client.
“The recently released disclosure regulations for FSLAA include expectations for providing information on the material limitations of advice given, disciplinary history of the person giving advice, and the fees, commissions or conflicts of interest that may apply.”
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Fidelity Life cannot be responsible unless they had prior knowledge and still did nothing.
The FMA say the new laws will make it an insurer's liability to have systems in place to prevent this churn. What does this mean? how far does this extend? If it's simply a matter of checking with the client that they understand disclosure and the consequences in general terms, that might work (I think this is what Partners Life is doing already anyway). If it is much more than this, then they live in LaLa Land. Insurers cannot determine whether or not an adviser has given acceptable advice without reviewing the whole care in detail, which means interviewing the client themselves, doing their own fact-find, comparing all the possible products and providers available to find the most suitable solution, and redoing application forms all over again to catch non-disclosure.
Insurers are not advisers! If they are lucky they will have a relatively few employees who could reasonably do an advisers job, most employees of insurance companies cannot, they do not have the skills or knowledge!
If NZ law continues on this 'the insurer must take responsibility where intermediaries (who are independent contractors not employees and not subject to instruction)are involved in the sale of its products' it will mean the end of independent financial advisers in the insurance space at least (very bad for customer outcomes). What sensible insurer would pay commission to an adviser when they have to hire an army of their own advisers to redo most of the work just to confirm it was good enough. No, we will revert back to the bad old days of tied agencies with the attendant lack of choice for clients (unless they engage multiple agents from different providers which won't happen). Maybe that is exactly what the Government and FMA wants and if so why don't they just say that.