Friday 10th May 2019
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New Zealand insurers have been steered to lessons from Australia's royal commission on banking when responding to the "dire" findings of a local conduct and culture investigation earlier this year.
Last week, officials from the Financial Markets Authority and Reserve Bank outlined which recommendations from across the Tasman local insurers should consider in their formal responses to the report, FMA regulation director Liam Mason said. The responses are due by the end of June.
Mason said a good starting point for the Royal Commission report was its opening observations. Those were the strong link between conduct and reward, the asymmetry of information between consumers and providers, that problems often arise from conflicts over sales by third parties, and that entities have to be held to account.
"The core message that the Royal Commission report has for the financial services industry also applies here in New Zealand – that primary responsibility for misconduct lies with the entities concerned, which requires a close look at the culture, governance, and remuneration of financial services firms," Mason said in a speech to the Insurance and Financial Services Ombudsman conference yesterday.
The Australian investigation into its financial services sector unearthed endemic misbehaviour and prompted New Zealand's regulators to embark on their own investigations.
The FMA and RBNZ found a number of weaknesses in the banking sector, and more substantial shortcomings among life insurers. They found the latter vulnerable to misconduct, indifferent as to is whether its products were suitable for customers, and too slow to make changes.
Mason said a particular concern was poor-value products, such as accidental death cover or funeral cover, where the chances of a customer getting any real benefit are slim. Instances of potential law-breaking are still being investigated, he said.
"While the findings of the joint RBNZ/FMA exercise present fairly dire reading, I think there is room for encouragement in where we go from here," Mason said.
In recent weeks, officials from the two regulators have been talking with the chief executives and boards of life insurers at workshops and in board meetings, he said.
"We have had frank and open conversations, and I think that many see, as we do, that we have an opportunity in New Zealand to address the issues that we’ve uncovered before they lead to incidents that erode public confidence in the industry – before we find ourselves where Australia is today," Mason said.
"My overriding message, though, is please do not think that waiting for reform is the right thing to do now."
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