The Government is taking action to scrap sales incentives in the insurance industry.
The Cabinet has agreed to fast-track a customer protection measure in the financial sector, according to Commerce and Consumer Affairs Minister Kris Faafoi. They plan to release a consultation paper on regulatory changes by May and introduce legislation later this year. This follows the release of the life insurer conduct and culture report by the Financial Markets Authority and the Reserve Bank of New Zealand, which highlighted major issues in the insurance sector that negatively impact consumers.
“Incentives such as overseas trips and loaded upfront commissions can cause a conflict for the salesperson,” he noted. “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policies being sold to people who are ineligible for cover, premiums continuing to be charged for a policy that’s no longer in effect, and policyholders not being effectively notified of increases in premiums.”
While the insurance industry has started to address issues raised in the reports, it is clear the government needs to act on regulation and the conduct of financial institutions, Minister of Finance Grant Robertson added.
Robertson outlined the changes that the government wants to see. These include:
- 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;
- A strong response to internal sales incentives and soft commissions.
“Because the issues identified with insurance and banking are similar, we will consider changes that apply across both sectors,” he said. “Also, while this report focuses on life insurers, it’s possible the vulnerabilities it identifies may exist across the broader insurance industry.”
Additionally, Faafoi explained that a consultation on these measures will run alongside work already underway to update insurance contract law.
“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,” the minister added.