Summary of FMA's Report on Life Insurance Industry

SP Insurance

At the end of January 2019, FMA and RBNZ issued a summary report on a comprehensive survey of the life insurance industry.

The report starts with product design, customer's actual needs, understanding of product characteristics, third-party intermediaries, sales processes, premiums, claims amount, after-sales service, etc., and raises the current problems in the life insurance industry and possible future.

SP summarized the important information into parts as following:

First, indication of industry's problems

The report published by FMA (New Zealand Financial Market Regulatory Authority) and RBNZ (The Reserve Bank of New Zealand) is only a part of the reform of entire financial industry. The report presents the review result of 16 life insurance companies' products, sales, customers, claims and other data, showing that there are many problems in the industry at this stage, and it is necessary to strengthen supervision.

We have summarized the industry issues that have emerged from the report, mainly including:

  • Customer risk
  • Low value insurance products
  • The industry's incentive system is unreasonable
  • Risk of online purchase
  • Industry terminology is difficult to understand
  • Inadequate training and monitor to intermediaries

Second, the direction of rectification

FMA is eager to see the board of directors and senior management of life insurance companies improve on:

  • Product suitability
  • Vulnerable Customers
  • Legacy or closed products
  • Ongoing customer communications
  • Customer-focused Culture
  • Customer feedback and measurement of customer outcomes
  • Poor value products
  • Training and supervision of third-party intermediaries
  • Replacement of the policy
  • Compensation and incentives

In the long run, life insurance companies need to provide customers with more satisfying products and continuous communication. For third-party organizations, good communication with customers is necessary and needs to avoid offering low-value products. Life insurance companies have the responsibility to pay attention to the attention of front-line employees to vulnerable customers. Customers and third-party organizations should be strengthened to feedback and deal with problems. At the same time, risks are controlled through high premium income and corresponding low claims rate.

Third, SP's thoughts

In the past two years, New Zealand's financial industry is preparing for the upcoming industry reforms in 2019. This is the biggest change FMA has made in 10 years. It will affect the entire financial industry including banks, insurance companies, financial companies and so on. The specific terms of the change are expected to be introduced in the middle of the year, let us wait and see.

SP Insurance believes that problems raised by FMA are very constructive, because there are indeed many problems that cannot be ignored in this industry. In the course of our employment, we also heard many customers mention various problems of the products that were previously purchased through other channels. For the majority of customers, this reform is good, because the overall reform direction will pay more attention to the customer's cultural background and actual needs. Customer-centered supervision of insurance companies and third-party organizations will effectively help customers understand all products and the risk aversion program that customers really need, and the subsequent series of high-value services.

In response to industry rectification, SP Insurance is improving our internal controls and taking industry-leading legal advice to support and help us quickly adapt to the upcoming new regulations. We are very grateful to all our customers for their trust they placed in us, and we must also act to prove that.

SP Insurance is committed to providing each client with the most suitable personalized advice and helping the healthy development of the entire industry.

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