Tuesday 29th January 2019
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Regulators should name and shame errant life insurers who don't mend their ways, Finance Minister Grant Robertson says.
The government is fast-tracking legislation to protect consumers after a joint Reserve Bank-Financial Markets Authority report into life insurance conduct outlined a range of poor behaviour, including selling products to customers who weren't eligible for cover, and charging for old policies after a customer had transferred to a new one.
Robertson told reporters at the Prime Minister's weekly post-Cabinet press conference that those kinds of practices were unacceptable, and both the banking and insurance sectors need clearer duties to their customers.
Issues among life insurance were particularly acute, which Robertson said was due to an incentive regime including soft commissions, such as overseas junkets
The RBNZ-FMA report didn't identify firms whose conduct fell short, which Robertson said was in line with an earlier review into the banking sector. Instead, firms have six months to fix their problems.
"Quite clearly, if they don't feel they're getting a response they want, then naming and shaming should be an option," Robertson said.
The report shows commissions to salespeople in New Zealand amount to about 25 percent of total premiums paid each year, compared to 15 percent in Mexico and Hungary and 12 percent in Australia. Up front commissions on new policies can range from about 170-210 percent of the first year’s premiums.
Robertson said the government plans to effectively ban soft commissions, which were driving the behaviour.
"Whether or not there are other sales practices that can survive, we can work our way through."
Robertson said the sector hasn't been regulated properly, focusing on product rather than the way it's sold or the organisation selling it.
Industry lobby the Financial Services Council said it will work with its members to act on the regulators' recommendations, accepting a number of the short-comings it highlighted.
Chief executive Richard Klipin said the industry has already taken a number of steps to improve culture and conduct, such as the council's members adopting a code of conduct, ending overseas conferences, and supporting the Financial Services Legislation Amendment Bill.
That bill is currently before Parliament and would force financial advisors to put the interests of their clients first and ditch clunky designations that have confused consumers. Meanwhile, Commerce and Consumer Affairs Minister Kris Faafoi has work underway looking into insurance contract terms.
Robertson said both pieces of work provide the opportunity to pick up some of the issues raised today, but said the government hopes to have new legislation before the House by the end of the year.
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