Regulators Life Insurance Report “Shows the Life Insurance Sector in a Poor Light”


The Reserve Bank of New Zealand (RBNZ) and the Financial Markets Authority (FMA) have published their Life Insurer Conduct and Culture Report.

The joint review of 16 New Zealand life insurers follows the regulators’ bank review published in November 2018 (See: Regulators Call For Banks…).

The regulators found that life insurers’ have extensive weaknesses throughout their systems and controls, with weak governance and management of conduct risks across the sector and a lack of focus on good customer outcomes.

FMA CEO, Rob Everett

FMA Chief Executive, Rob Everett, commented that overall, their findings from the review paints the life insurance sector in “…a poor light”.

“Life insurers have been complacent about considering conduct risk, too slow to make changes following previous FMA reviews and not sufficiently focused on developing a culture that balances the interests of shareholders with those of customers.”

“The industry must act urgently and undergo major change to address these weaknesses…”

RBNZ Governor, Adrian Orr

Reserve Bank Governor, Adrian Orr, added: “The industry must act urgently and undergo major change to address these weaknesses, as their services are vulnerable to misconduct and the escalation of issues that have been seen in other countries.”

Orr warned that public trust in life insurers was at risk of deteriorating unless boards and senior management changed their approach to conduct risk and achieve a customer‐focused culture.

“Ultimately insurers need to take responsibility for whether customers are experiencing good outcomes from their products, regardless of how they are sold,” he said.

Regarding commission structures to intermediaries, the regulators stated they expect insurers to review these structures and volume bonuses to make sure they are incentivising intermediaries to deliver good customer outcomes.

“High upfront commissions are not acceptable as they drive poor conduct and can result in poor customer outcomes.”

“In our view, high upfront commissions are not acceptable as they drive poor conduct and can result in poor customer outcomes,” the report stated.

Other key findings in the report include:

  • Limited evidence of products being designed and sold with good customer outcomes in mind
  • Some insurers did little or nothing to assess a product’s ongoing suitability for customers
  • Sales incentives structures risk sales being prioritised over good customer outcomes
  • Where sales were through an intermediary, there was a serious lack of insurer oversight and responsibility for the sales and advice, and customer outcomes
  • Remediation of conduct issues is generally very poor, with insurers slow to respond to issues and in some cases not sufficiently remediating them

The regulators stated they did not find widespread cases of misconduct on the part of life insurance companies, although there were several instances of poor conduct.

There were also a small number of cases of potential misconduct (ie: breaches of the law) that the appropriate regulator will investigate further.

The report noted that some of the issues and themes were akin to those highlighted in the Australia Royal Commission, but on a smaller scale.

The FMA and RBNZ stated they are not confident that insurers themselves are aware of all the current issues, creating a serious risk of further conduct issues arising.

A positive finding in the report showed that, in general, frontline claims teams were focused on good outcomes with a strong desire to do the right thing for their customers.

The regulators confirmed that next steps include providing individual feedback to all 16 life insurers, each of which will need to report back to the regulators by 30 June 2019.

The insurers will need to provide an action plan that the regulators will review, including how they will address incentives based on sales volumes for internal staff and commissions for intermediaries.

Click here to view the full report.