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The increased focus that regulators are placing on New Zealand’s life insurance industry may hamper growth in the short-term.
According to Fitch Ratings, the joint report released by the Financial Markets Authority (FMA) and the Reserve Bank of New Zealand (RBNZ) criticising the country’s life insurance industry for being vulnerable to misconduct may stall the industry’s growth as the government works to implement the report’s recommendations.
“Fitch believes insurers may revisit pricing and design of certain life products, which could inhibit premium growth, at least initially,” said Fitch. “Regulators have identified the presence of certain life products that are of poor value to consumers as the products have extremely low loss ratios and high rates of claims being declined.”
The joint report criticised the industry’s commission structure, which at 25% of total premiums paid each year, is among the highest in the world. By contrast, Australia’s life insurance industry paid 12%, while the United States paid about 9%.
“Regulators called for changes to incentive structures and removal of incentives linked to sales measures, which create risks of sales being prioritised over customer outcomes,” Fitch said.
However, Fitch expects that the industry will eventually adapt to the recommendations. “We expect implementation of the regulators’ recommendations to address these issues to improve insurers’ business profiles over the longer term,” said Fitch.
