The Government has declared that sales incentives no longer have a place in the life insurance sector.
Shortly after the RBNZ and FMA published their report into the conduct and culture of life insurers (click here), Commerce and Consumer Affairs Minister, Kris Faafoi, announced the Government would be taking action to fast-track customer protection measures in the financial sector.
“The report has found New Zealand’s life insurance industry has a culture that prioritises sales over customer interests and customers deserve better,” said Faafoi.
“Cabinet today agreed we are going to get rid of sales incentives in the insurance industry that are driving behaviour that is not in the best interest of consumers.”
“…we are going to get rid of sales incentives in the insurance industry that are driving behaviour that is not in the best interest of consumers.”
He said a regime was needed which steered banks and insurers to focus on good outcomes for the consumer and to not be conflicted by sales rewards.
“Incentives such as overseas trips and loaded upfront commissions can cause a conflict for the salesperson. We have also heard about insurance policies being sold to people who are ineligible for cover, premiums continuing to be charged for a policy that’s no longer in effect, and policyholders not being effectively notified of increases in premiums.
“This, with the findings from the earlier report on banking conduct and culture, means that we have to take action. We plan to release a consultation paper on the changes by May and introduce legislation later this year,” Faafoi said.
Minister of Finance, Hon Grant Robertson, highlighted four changes the Government wishes to see:
- Clearer duties on banks and insurers to consider a customer’s interests and outcomes, and to treat customers fairly
- An appropriately resourced regulator to monitor the conduct of banks and insurance companies, with strong penalties for breaching duties
- Changes applied to both banking and insurance, since the issues identified in both are similar. There are also overlaps between the sectors, with banks often selling insurance products.
- A strong response to internal sales incentives and soft commissions
“We will consult with the public and industry on these changes, but we are going to move as quickly as possible on this because New Zealanders need to have confidence their rights and interests are being protected,” said Robertson.
Faafoi noted that the consultation will run alongside the insurance contract law review currently in progress.
“It is an ambitious timeframe but my intent is to have both pieces of legislation in Parliament by mid-2020, because it is time to ensure consumers get protection that is clearly needed,” he said.