The Financial Markets Authority (FMA) and Reserve Bank of New Zealand (RBNZ)’s recent report into the conduct of 16 life insurers shone a concerning light on practices within that sector, and, according to Reserve Bank Governor Adrian Orr, the findings may be relevant for the fire & general insurance sector as well.
Orr stated that the lessons and messages within the report “are consistent for the rest of the insurance sector too,” and the entire industry would need to pay close attention to its findings and recommendations.
IBANZ CEO Gary Young says that despite the harsh findings of the regulators in their review, the vital difference between the life and general space is the way their respective commission structures are organised. This will be the the key differentiator in how conduct issues are managed, as general insurers lack the large upfront cuts that are so prevalent within the life sector.
“Both general and life insurance offer commissions as a way of paying advisers to a greater or lesser extent, depending on the type of client they’re dealing with,” Young told Insurance Business.
“There’s always a chance that general insurance will get pulled into the fray because of that, but the commission structures between life and general insurance are very different. There are no large, upfront commissions in general insurance – there are more trailing commissions where you get a certain amount every year, and the amounts are quite small compared to what the life advisers get. In that respect, it’s a completely different approach.”
“Hopefully, the regulators will recognise the difference between the two sectors,” he continued. “I don’t think we have the issues within the general space that they have found in the life space. There is always the possibility that it may need further review, but the items that have been highlighted in that report are quite specific to the way life insurance is run.”
“The key role now of IBANZ is talking to the government and associated organisations about the legislation and proposed regulations,” he concluded. “It’s about ensuring that those who are making the rules understand our sector and how it works, so that they can produce something that will be effective in the real world.”