The fire and general insurance sector has come under fire in a new report released by the FMA, which states that insurers are “ill-prepared” for the CoFi Bill, and are demonstrating a “low level of conduct maturity.”
Following the Life Insurer Conduct and Culture Review of 2018, New Zealand’s fire and general insurers were asked to look at the recommendations that were made and apply them to their own businesses.
According to the FMA’s Insurance conduct: Fire and general insurers update, only two of the 42 insurers reviewed - IAG and the Medical Assurance Society - offered responses that “met expectations in full.” For the rest, the review found that conduct maturity was low, product and policyholder review processes needed improvement, and insurers needed a stronger line of sight on their intermediaries, both with regards to commission, and how they are selling and managing their products.
FMA director of banking and insurance Clare Bolingford (pictured) said that the FMA was “disappointed” with the outcome of the review, and that the industry needs to take “meaningful steps to improve, or risk facing regulatory action.”
“Following our review into banks and life insurers’ culture and conduct in 2018/19, we wrote to all fire and general insurers asking them to look at the recommendations that we made in the report,” Bolingford said.
“Unfortunately, we were not happy with the response that the industry provided when we asked for their results.”
“Only two out of 42 insurers met our expectations, and the majority of the medium and smaller sized institutions have a lot of work to do if they’re going to meet the new regime’s requirements,” she explained.
“We were disappointed with the results, and we put this down to firms not really understanding the conduct risks that they’re running in practice, and how their customers can come to harm.”
“What we mean when we talk about poor conduct is where their customers have had to pay more than they should, or where they hold policies that they actually can’t claim on,” Bolingford added.
“We see this happening where firms don’t have the right types of controls and processes in place to ensure that customers are charged correctly, and to ensure that they have suitable products for their needs.”
Bolingford said the FMA would now be writing back to each firm individually to set out which areas they need to focus on, and they are expected to make progress on those areas before the CoFi regime comes into force.
The Insurance Council of New Zealand has since responded to the report, and chief executive Tim Grafton said that while the results have been acknowledged, he “does not believe it reflects the current state for ICNZ members.”
“It is important to note that much has been done since the review was undertaken almost two years ago to improve systems and customer outcomes,” Grafton said.
“Our sector is fully committed to good customer outcomes, as seen by the multiple responses to customer vulnerability arising during and from the COVID-19 lockdowns.”
“Insurers must continually earn the trust and confidence of customers by making improvements to all aspects of their operations - including governance, systems and processes, products and distribution,” he said.
“The new conduct regime under CoFi reinforces this, and provides the sector with 18 months to get it right.”