The Reserve Bank and FMA review of the life insurance industry

The Reserve Bank and FMA have publicised their findings of poor practices within the life insurance industry; https://fma.govt.nz/news-and-r... . The review raises issues around culture and practice in sales and claims. It's no secret that there have been concerns around the use of sales incentives for brokers and other intermediaries in the sale of life policies, for a number of years, and I am unsurprised by the outcome of this aspect of the review. It's also no surprise that there are issues with claims being declined for technical issues such as innocent non-disclosure; the law in New Zealand (as it currently stands) allows for such unfair declinatures, is out of step with the rest of the world, and is likely to be reformed and soon. 

To me what the report highlights is the lack of transparency around claims handling in the life sector (but the same applies across the entire industry). Payment of claims is the core function of an insurer, we care about the premiums we pay each year on renewal, but ultimately the point of insurance is to pay a claim when unfortunate (insured*) events occur. 

Those of us who work in the industry know that there are good payers and bad payers. Anecdotally, there are companies which I deal with who have a low market share, but have twice as many complaints and disputed claims as their larger industry rivals. The case managers in the dispute resolution providers (Fairwy, FSCL, IFSO, or (very occasionally) the Banking Ombudsman ) know the bad payers, BUT, they don't publish the statistics on which companies have the most complaints made against them or (more importantly) which have the most complaints upheld. This is part of three broader issues;
1) independence of the dispute resolution providers, who are competing for market share (never a good development when you are competing for the business of those whose conduct you are there to regulate); and
2) the fact that claims handling (as I said above, the core function of an insurer) is subject to ad-hoc regulation (I estimate from my 20 years in the industry, many of which were spent handling claims for insurers or brokers that over half of unfairly declined claims are not disputed) and this regulation is not linked to other aspects of the regulation of the industry; and
3) the industry is currently regulated in a piecemeal fragmented fashion; the broker/intermediary who sells the policy is regulated by the FMA and one of the first three dispute resolution providers listed above, the insurance company is regulated by the Reserve Bank, the FMA, and one of the four dispute resolution providers, so potentially, misconduct falls somewhere between four different regulators; Reserve Bank, FMA and up to 2 different dispute resolution providers. The number of gaps for problems to fall into are many.

The solution to me is simple; Combine the roles of the FMA and Reserve Bank to regulate the front end, and get rid of the separate, industry funded dispute resolution providers, creating a single one stop shop, insurance tribunal (within the MoJ Tribunal framework) so that claims and other complaints are assessed a) independently, b) consistently, and c) with published data about the claims handling practices across the industry. Finally every insurer should be required to report the data (which should already be held in any event) on the number of claims recieved, the numbers paid and declined, and the reasons why those claims are paid.            

* a declined claim for something which the policy was never reasonably going to cover doesn't count