The FMA has published the findings of its engagement with insurers on how they manage customers’ interests during periods of short-term sales campaigns and soft commission incentives.
The regulator says in a statement that it wrote to insurers last year “…after observing some insurers offering benefits and campaigns designed to drive business coming from third parties such as financial advisers.”
“These types of incentives, if not carefully managed, can create conflicts of interest that put the fair treatment of consumers at risk.”
It says that Insurer benefits and campaigns insights outlines observations of current industry practices and reinforces expectations under the Conduct of Financial Institutions regime, which requires insurers to treat consumers fairly.
Michael Hewes, Director of Deposit-taking Insurance and Advice, says that while practices have moved on since FMA work in this area in 2018 and the introduction of the CoFI regime, it’s important insurers manage the risks appropriately.
“These benefits and campaigns, or soft commissions, have a place but insurers should actively consider these risks to ensure their fair conduct programmes are designed to support fair treatment of consumers.”
He says the FMA wants these insights “…to support insurers to take consumers’ interests into account when designing, offering and managing benefits and campaigns.”
The full report explains that insurers may interpret the terms ‘non-monetary benefits’ and ‘short-duration sales campaigns’ differently – they are sometimes referred to as ‘soft commissions’. It outlines these terms which it refers to collectively as ‘benefits and campaigns’ as:
- Non-monetary benefits are advantages that are non-monetary in nature and may directly or indirectly incentivise employees, agents and/or intermediaries to encourage consumers to consider, commit to, or purchase a product or service, whether this is intentional or not. Examples include gifts, prizes, trips, tickets to sporting events, and professional development such as training, events and conferences.
- Short-duration sales campaigns are initiatives conducted over a limited period that aim to incentivise employees, agents and/or intermediaries to encourage consumers to consider, commit to, or purchase a product or service.
…encouraging insurers to take a proactive … approach, considering the real-world impact of soft commissions on their customers…
The FMA says in its statement that while most insurers have processes in place to identify and manage risks, their approaches vary. It is encouraging insurers “…to take a proactive and outcomes focused approach, considering the real-world impact of soft commissions on their customers.”
Areas of focus identified include:
- The need for broader stakeholder involvement when designing incentives to better identify risks early and consider how these align with the fair conduct principle
- Clear governance, record-keeping and approval processes
- Stronger monitoring of how incentives influence behaviour and consumer outcomes
- Greater use of proactive, outcomes-focused reviews rather than relying solely on reactive controls, such as complaints or reactive feedback
The regulator notes that this work aligns with a focus in the FMA’s Financial Conduct Report that consumers and investors understand fees, incentives and commissions and the outcome of well-informed consumers and investors.
Click here for the full report.