Very disappointing review of the Insurance Industry by FMA & RBNZ
Very disappointing review of the Insurance Industry by FMA & RBNZ
Read the full report HERE
Disclaimer, I am in the financial services industry and I am proud to say that among the many kinds of advice I provide to clients, that I include advice on insurance and sell them policies. I am also about to pop my head above the parapet.
I along with many others in our industry have long waited on and welcomed this review, and had high hopes for it, while for years we have jointly strived to lift standards and improve client outcomes ..........but what a disappointing and seemingly poorly researched piece of work it has turned out to be.
Yes, it has correctly identified several significant structural, system & conduct issues within the industry, but it then tried to justify its suggested drastic remediation, on statistically insignificant data sets either because, the data is insignificant, or it was less than in depth research.
I don’t in anyway suggest that any of the industries failings which affect clients are insignificant, and that they shouldn’t be repeated, and clients should be recompensed where they have been wronged. Nor do I disagree that some practises need to change, staff and adviser training improved, products lifecycles reviewed. I along with most good advisers welcome that. But, based on what has been produced, the changes mooted are the proverbial sledgehammer to crack a walnut.
The authors recommend urgent regulatory intervention to avoid what they must see as the risk of some financial apocalypse within the industry, when again, based on stats or anecdotal evidence in the report, less than .00004 clients are affected. (I made that stat up but its better than some justification I saw in the report)
Only once did the authors caution that their suggested fixes for the industry could lead to unintended consequences for clients. But then they ducked for cover and rather than suggest (a) what those might be and (b) how such unintended consequences might be mitigated, they implied “hey when we bring in these new changes if the public are disadvantaged then that’s the industries fault and the industry will have to fix our stuff up”.
I guess it was because it was so poorly researched the authors / researchers have chosen to be anonymous.
While its intentions are laudable, problems I see in this report are;
▪ Many times in the report it repeats that issues of conflicted remuneration leads to poor client outcomes and state the industry and advisers need to change to improve client
outcomes. They must have based much of that on hearsay because they only spoke to 29 advisers out of a possible pool of many thousands and no clients.
▪ What’s more, professional bodies who represent advisers such as FANZ, weren’t even identified in the report stakeholders within the industry or spoken to.
▪ It further recommends through out that the industry must be more client focussed - and I applaud that, but its extremely light on detail regarding supposed benefits that might flow to the millions of policy holders in NZ from the suggested drastic changes the authors demanded.
▪ What they have demanded will equate to multi-million-dollar investments in technology, training, product design, legal costs & client communication. If that is what is required then as an industry I hope all within it, embrace those changes. However, in the next breath, the authors seemingly ignoring the cost of such change, they suggest that by reducing commissions to advisers’ client’s premiums could be reduced by 12%. Really, where is the evidence for that, other than some bush maths? Have none of the authors ever been in business?
▪ When the insurers and industry start to implement the changes demanded, where do the authors think the money come from? It will come from paying less commission, which will probably mean less sales, less insured New Zealanders, but then any savings will be diverted not to cheaper premiums, but into funding the very investment which is required.
▪ The most damning is that no customers were spoken to! The authors only had to ask insurers or advisers, which they have the legal authority to do, to get access to thousands and thousands of names of customers to speak to. But I guess it wouldn’t have suited the tone of the report if it had to include customers who expressed satisfaction with their interactions with the industry. How can anyone on one hand demand the industry hold focus groups with consumers to find out what they want and be more client centric, and then on the other hand carry out a review of that industry, but fail to speak or consult with those you say you are trying to get better outcomes for?
Is it only what the authors think should happen that is important?
So, while I’d hoped for a great outcome for clients and an improved industry from this review, in the end I fear this is not the report that will start to deliver that. The lack of customer input, and woeful business logic, will sadly mean the Government & regulators will get what they want, but customers may notice little real change. I pray I am wrong.
Scorecard
▪ Instigating research into the industry to improve outcomes for clients = A+
▪ Research undertaken, based on what they have put in the report = C-
▪ Reported stats to justify recommended changes = D
▪ Financial logic that reducing commissions and implementing the changes will enhance client outcomes & reduce premiums for clients = E
▪ Lack of research into what the unintended consequences of the changes will be for the consumer = E
Warwick Walker
AFA, CFP(CM)