The life insurance industry is under threat of further regulation unless it deals with the issues raised by the Reserve Bank of New Zealand (RBNZ)/Financial Markets Authority (FMA) conduct and culture review.
In February 2019, 16 life insurers were asked to conduct a gap analysis of their business, including a systematic review their policyholders and policy portfolios, and provide work plans setting out how they would respond to the review’s findings and recommendations.
They submitted their responses at the end of June, but some of them failed to meet the RBNZ and the FMA’s expectations. In a media release this week, the regulators stated that the sector had a “weak appetite for change” and that:
- significant work is still needed to improve governance and to better manage conduct risk
- there is a wide variance in the quality and depth of the policyholder and products reviews, with some uncompleted and others failing to provide data on the number of policyholders affected or the estimated cost of remediation activities, and
- some have yet to commit to removing or altering indirect sales incentives or put in place appropriate systems and controls to manage conflicts of interest.
Individual letters have been sent out to each of the 16 insurers recording the regulators’ findings in relation to their progress. Those insurers that have not undertaken comprehensive systematic reviews, have until December this year to complete further reviews to identify any issues and to develop mature response and remediation plans.
Other life insurance companies operating in New Zealand were asked to develop similar plans in March and have until the end of October to deliver.
Should the RBNZ and the FMA still not be satisfied with the results achieved through this process, they will go to the Government seeking that “additional obligations” be imposed upon the life insurance sector.
If the Government agrees that stronger regulation is necessary, it will be in an easy position to respond as Commerce and Consumer Affairs Minister Kris Faafoi has indicated that the legislation arising from the reviews into the banking and insurance industries will soon be available for presentation to Parliament. The FMA has also indicated that it intends to seek legislative power allowing it to proactively examine how insurers handle complaints and manage risk, and what governance systems are in place.