Tuesday 22nd May 2018
|Text too small?|
Consumer Affairs Minister Kris Faafoi wants people to tell him about their concerns with the insurance industry, as pressure builds on the sector over conflicts of interest around incentives, harsh disclosure provisions, and unfair exemption clauses.
A well-functioning, fair insurance system was essential, but New Zealand's regulations were outdated, with legislation spanning six different acts, some of them more than 100 years old, Faafoi said.
“There are significant problems with New Zealand’s insurance contract law, which are undermining the effectiveness of our insurance markets ... I have heard, for example, that consumers are sometimes not covered for losses or unable to claim for important needs like health treatment because they innocently did not disclose seemingly unrelated matters to the insurers,” Faafoi said.
“I hope onerous disclosure requirement is an issue that will be addressed in feedback from submitters."
Announcing the start of public consultation on New Zealand’s contract law, the minister highlighted several worrying practices, including:
Insurers refusing all claims under a policy if the consumer does not share a material fact, even if the undisclosed fact is unrelated to the claims made, the non-disclosure did not cause any loss to the insurer and the non-disclosure was innocent;
The fact there was no single regulatory body dealing with the full policy lifecycle, leading in some cases to protracted disputes over claims and bad outcomes for consumers;
Remuneration practices, both in terms of financial commissions and other perks that may be incentivising behaviours that are negatively impacting consumers. This includes agents persuading people to take out policies they don’t need, or to switch to a new policy that isn’t as good as the one they had before;
Excessive pressure on potential customers from people selling insurance. In Australia, a review of insurance sales tactics led to thousands of customers getting refunds;
Unfair contract terms, particularly exclusions and exceptions.
Faafoi isn’t the only one worried about the insurance sector. A hard-hitting report from the Financial Markets Authority last week highlighted $34 million of perks received by life and health insurance sales people over a two year period, including prizes, sponsorships and free overseas trips. The report noted significant conflicts of interest around this “soft remuneration” and asked whether agents could give good advice to customers when working towards targets to get these rewards.
Another FMA report, Replacing life insurance - who benefits? released in March this year, found significant conflicts of interests can arise from incentives and commission in the life insurance industry. But many advisers didn’t recognise the problem, nor were they aware of their obligation under the Financial Advisers Act 2008 to exercise “care, diligence and skill” towards customers.
Jessica Wilson, head of research at Consumer New Zealand, welcomed the announcement: “This review is long overdue. We’ve been calling for reform for some time and talking about the issues the minister has raised for years.”
Wilson said the organisation already has evidence from members that it can provide to the review, and will be gathering more.
Consultation is open until 5pm on Friday, July 13, 2018.
No comments yet
Updated: NZ central bank cuts rates, signals more to come
Ardern, Macron to chair meeting to stop social media's use in terrorism
NZ commodity prices lift in March, led by dairy
Barfoot sees regained momentum in Auckland sales amid flat prices
House prices rose in February but sales volumes fell 9.5%
NZ commodity prices continue to lift in February
Rising house prices put pressure on affordability through tail-end of 2018
Standard & Poor's lifts NZ's outlook to positive
Fuel imports drive NZ's annual trade deficit to 11-year high
RBNZ plucks bank capital numbers out of the air: Reddell