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"Conduct effectively unregulated"

15 May 2017

In an article Rebecca Sellers, a director of Melior Law & Regulation comments on the recent IMF report which identifies the NZ focus on financial advice leaves much of insurers’ conduct effectively unregulated.

The IMF is critical of the low level of protection consumers receive when buying most insurance products. The IMF acknowledges that change is proposed to the regulation of financial advice (“FAA Proposals”). However, the IMF Report’s recommendations go further than the FAA Proposals.  

“The government should consider a proportionate regulatory regime for insurance intermediation not currently captured by the legislation, including pure sales and intermediation where ancillary to another line of business.” The IMF recommends that within one year the FMA should build more insurance expertise to promote adequate conduct supervision of the insurance sector.

The IMF Report identifies claims handling as a potential source of misconduct by insurers. Australian owned operations in New Zealand represent 66% of the insurance market by premium and 75% of the insurance market by assets. This suggests that the findings of the 2016 Australian Securities and Investments Commission (“ASIC”) thematic review of claims handling practices could be relevant in the New Zealand context.

ASIC recommended that the Australian law is changed so that “insurance claims handling” is covered by the financial services conduct provisions of the Corporations Law. Industry has responded by launching the Life Insurance Code of Practice.

Even prior to a law change in Australia, the experience of a New Zealand consumer may be less favourable at claims time.  Australia has all but abolished the duty of disclosure in consumer cases. New Zealand’s antiquated law on non-disclosure provide insurers with additional grounds to deny a claim – leaving New Zealand consumers in a weaker position than their Australian counterparts.

The IMF acknowledges that the developing framework of self-regulation in New Zealand has helped to reduce the risk to consumers. Since January 2016 members of the Insurance Council of New Zealand have been bound to higher standards of service by the Fair Insurance Code. The Financial Services Council of New Zealand is in the process of developing a code of conduct for its members.  However, the IMF Report states that self-regulation is not a “substitute for regulatory requirements and effective oversight”.


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