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FMA report slams insurers

The FMA has fired serious warning shots at the general insurance industry saying it is not prepared for new legislation requiring them to ensure good conduct and fair treatment of customers.

Thursday, July 22nd 2021, 6:00AM 6 Comments

by Matthew Martin

The FMA's Clare Bolingford.

The Financial Markets Authority (FMA) released its Insurance conduct and culture: Fire and general insurers report this morning stating that general insurers "...broadly have a poor understanding of, and commitment to, good conduct and culture practice".

The report summarises responses to the FMA's Life Insurer Conduct and Culture review undertaken by the FMA and the Reserve Bank of New Zealand in 2019 but did not include the life insurance sector.

The FMA says it requested insurers’ responses in December 2020, around 18 months after its initial request, due to the impact of Covid-19 but in most cases the responses were poor and inadequate with only two out of 42 insurers – IAG and Medical Assurance Society - meeting expectations.

Fire and general insurers – classified as providing house, contents, vehicle, commercial, liability, travel and health insurance - were asked to review their operations to make sure there were no material conduct issues and to demonstrate good conduct in their dealings with consumers.

The FMA report concluded the sector is not prepared for the Financial Markets (Conduct of Institutions) Amendment Bill (CoFI), which will expand the FMA’s remit to regulate and license the conduct of the insurance sector.

In response, the Insurance Council of New Zealand (ICNZ)  acknowledged the need for constant improvement of the sector (see further comment below).

The majority of insurers did not complete their reviews to the appropriate standard, with 95% of responses considered inadequate or deficient, the report states.

FMA director of banking and insurance Clare Bolingford says with their substandard response to FMA’s request, insurers have also revealed a worrying lack of commitment to ensuring good customer outcomes.

“While new legislation is not yet in place, core conduct standards should apply across the financial sector. We’ve made this point repeatedly over several years and provided various resources and published reports for this section of the industry to measure themselves against," Bolingford says.

By the numbers:

- Only two out of 42 insurers met the FMA's expectations in full - IAG and the Medical Assurance Society
- Around 95% of responses did not meet FMA expectations
- 71% of responses were considered inadequate
- Just nine insurers recognised customer vulnerability as a key issue
- 30 insurers out of 42 completed the FMA's action plan but 19 provided insufficient detail
- 22 insurers out of 42 completed the product review. Only six said improvements were required to the product review process
- 28 out of 42 insurers committed to removing volume-based incentives for internal staff

The review found many insurers fail to actively monitor product suitability, fail to effectively withdraw poor value or legacy products, and have over-charged some customers.

Examples of conduct requiring remediation included insurers double-charging customers several times, not giving customers multi-policy discounts, significantly overcharging some premiums due to poor IT systems, no-claims bonuses not being applied, late payment fees being charged without appropriate cause, customer data (eg date of birth) not being accurate, and out-of-date product features and benefits that are unlikely to ever be claimed.

Bolingford says some insurers need to carefully consider what they need to do to meet the proposed requirements for a licence to operate under the new conduct regime.

“They will need to ensure that their products and services are clearly understood by customers and suited to their needs,” she says.

The FMA, and every New Zealander who puts their trust in insurers to protect their families, businesses, lives and assets, are expecting it.

ICNZ chief executive Tim Grafton says the report shows much improvement is needed before the CoFI legislation comes into force.

He says it allows the insurance sector to work with the FMA to address all areas of concern so they can meet their expectations at that time.

"We do not believe that the report reflects the current state for ICNZ members."

ICNZ represents the fire and general insurance sector - 16 of the 42 insurers approached are ICNZ members.

"The new conduct regime under CoFI reinforces this and provides the sector 18 months to get it right."

Grafton says the ICNZ is fully supportive of steps to ensure good customer outcomes and is confident its members share this commitment.

Tags: CoFI compliance FMA health insurance house insurance Insurance Council NZ medical insurance

« Once in a lifetime business - Take twoCoFI debate back on agenda »

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Comments from our readers

On 22 July 2021 at 9:50 am LNF said:
Only two out of 42 insurers met the FMA's expectations 95% of responses did not meet FMA expectations 71% of responses were considered inadequate
Perhaps there is a message in the stats
On 22 July 2021 at 10:28 am Murray Weatherston said:
@LNF
What do you think the message is. It's not exactly clear to me.
Is it "most [almost all] f&g insurance companies are bad citizens"; or
is it "FMA knows more about running a F&G company than the present incumbents"; or
is it "FMA have set the bar extraordinarily high";? or
Is it something else
On 22 July 2021 at 12:26 pm Adviser1 said:
Meanwhile, in the real world, advisers are still trying to secure PI cover by the end of the month so they can remain in business...
On 22 July 2021 at 12:38 pm LNF said:
@Murray
If 95% of legitimate well established and capable business did not meet expectations, might the age old saying "they were all out of step except me" be possible and perhaps take a look at the "expectations" and even maybe the status of the relationship between the parties. Just a thought as quite clearly there is a gap
On 22 July 2021 at 5:21 pm JPHale said:
There's a gap, alright. However, the mainstream media has missed what Matthew pointed out here, the real impact on the consumer.

Selling products with no chance of a claim being the most significant issue in the list (to what extent they have not quantified)
Multi-policy discounts are fluff to the underlying double charging and overcharging issues.
And the lack of rigour on the product development and review for product withdrawal is also a key underlying issue.

The message from the FMA was these institutions are not up to the standard needed by CoFI, while at the same time, these institutions haven't had a requirement to be up to the standard of CoFI under past law aa CoFI is not yet law.

It does say that CoFI hitting in less than 6 months needs to have a lead-in period for the providers to sort it as there are significant gaps between where they are and where the new expectations are from the FMA message and they will struggle to hit this before the end of the year.

Fun times for all it seems!
On 24 July 2021 at 10:36 am Matron said:
Sounds like 'whack-a-mole'!

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