The multi-billion dollar life insurance industry is in for a shake up after the release today of a damning, high level report.
The Reserve Bank and Financial Markets Authority conducted a review into the industry, following multiple issues raised in Australia.
- Several instances of poor conduct - a small number of potential breaches of the law will now be investigated by authorities
- Little evidence insurance products are being designed and sold with good customer outcomes in mind
- Sales incentives prioritised over customers
- Insurers slow to respond to, and fix, issues
- Some insurers did little or nothing to asses a product's suitability for customers
It did not find "wide evidence" of misconduct.
"Overall, the report shows the life insurance sector in a poor light," said FMA Chief Executive Rob Everett. "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."
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.
"Public trust in life insurers could be eroded unless boards and senior management transform their approach to conduct risk and achieve a customer focused culture."
Most companies use sales incentives - such as travel or tickets to events out - for staff.
The report says there's a serious risk of further conduct issues arising unless insurers change their behaviour - and say they must get rid of sales incentives.
Examples of bad behaviour include sales staff failing to notify policy-holders of increases to their premiums, old policies not cancelled when customers transferred to a new policy and selling of credit insurance to potentially ineligible customers.
There are about 4 million life insurance policies - and Kiwis pay $2.57 billion dollars in premiums a year.