A report aiming to improve the culture and conduct of New Zealand’s life insurance industry may require companies to change their entire business model, but the outcome will be better service for their customers, says the Commission for Financial Capability (CFFC).
The Managing Editor of CFFC’s Sorted website, Tom Hartmann (left), says consumers are at the mercy of intermediaries selling life insurance on behalf of companies who have not invested in their own frontline staff.
“It is often impossible for consumers to know the difference between being told or sold,” says Hartmann. “If a financial advisor is giving you the best options based on your circumstances, and shopping around for the best policy for you, that’s great, but if they’re only working for one company they’re just a sales funnel.”
The report by the Reserve Bank and the Financial Markets Authority (FMA) concluded that life insurance companies put sales and profits ahead of customers. They did not concentrate on selling people the right product, had poor systems and poorly trained staff to handle complaints or oversee risks. Companies had been too slow to clean up their act after being criticised by the FMA last year of paying millions of dollars in commission, as well as lavish holidays and other perks, to third-party agents selling their policies without tackling issues of possible conflict, disclosure, or whether the products sold were appropriate.
“Many insurance companies outsource the selling of their products to agents and shield themselves from risk – they incentivise the agents to sell, but effectively wash their hands of poor customer outcomes,” says Hartmann.
He supports the report’s next steps, providing the 16 life insurers studied with individual feedback and requiring them to report back to regulators by June 30 on how they will remedy the issues raised.
In the meantime, consumers can question an agent regarding whether they are independent or acting for a particular company, whether they receive incentives and whether they will shop around for the best product for the client’s circumstances.
“This report is an important vehicle for change. It may require the industry to change its entire business model, but I’m hopeful of a better outcome for consumers.”
