Six insurers have withdrawn poor value-for-money insurance policies exposed in the Financial Markets Authority's "conduct" review of general insurers.
The FMA’s review also resulted in insurers confessing to overcharging some customers, sometimes wrongly charging late premium payment fees, and not giving promised "multi-product" discounts to people who bought house, contents and car insurance from them.
Clare Bolingford, the FMA's director for banking and insurance, said: "I suspect many of these issues would not have been identified without the FMA requiring insurers to review their products and policies."
Many general insurers, a term which covers providers of house, car, contents, travel, business and health insurance, didn't do the product reviews the FMA requested from them in 2019 before the Covid pandemic struck, leading Bolingford to suspect more overcharging and poor-value policies remains to be identified.
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The general insurer conduct review followed reviews of banks, and life insurers, which the FMA did after the Australian Royal Commission into misconduct by banks and insurers revealed the Australian parent companies of New Zealand banks and insurers had treated many customers shoddily.
The FMA’s review of banks in 2018 revealed their Australian owners had underinvested in their New Zealand operations, and resulted in banks self-identifying failures that resulted in millions of dollars of compensation paid to their customers.
The review of life insurers found insurers were complacent, slow to pay customers back when they over-charged , and needed to ditch the high commissions paid to insurance advisers.
Bolingford said: "New Zealanders rely on insurance to protect what they value most. Customers rightly expect to be treated fairly, have their interests properly considered, and have access to products that are fit for purpose."
She said only two of the 42 house, contents, car, business, travel and health insurers reviewed had done what the FMA had asked of them in the review, which began in 2019.
They were IAG, which owned the State, AMI and NZI brands, and Medical Assurance Society.
The report said several insurers had large-scale remediation activity under way as a result of the review and that would mean refunds for thousands of customers.
Bolingford said it was very hard for customers to understand how their house, car and contents premiums were calculated, so it was disappointing to find insurers' systems not identifying overcharging.
She gave the example of a couple in their 80s discovering they had been charged double premiums by their insurer for two years, resulting in them overpaying by $800.
The FMA did find evidence that some insurers proactively identified overcharging, and fixed it.
"These issues were mostly related to weak systems and processes, poor value and legacy products, and lack of ongoing monitoring of suitability throughout the product lifecycle," Bolingford said.
The review did not delve into one important aspect of how general insurers treated their customers.
"Claims was not a focus of this thematic review," Bolingford said.
Insurers do not yet have specific conduct obligations to customers.
But laws requiring banks, life insurers and general insurers to have "fair conduct programmes" are being debated by Parliament, and are expected to pass into law early in 2023.
In the second reading of the Financial Markets (Conduct of Institutions) Amendment Bill in June, National's Nicola Willis dubbed the laws "a compliance-heavy, box-ticking exercise", saying the party opposed their introduction.
"The vast majority of these insurers need to do much more work to meet our expectations and prepare for the new regime," Bolingford said.
Tim Grafton, chief executive of the Insurance Council of New Zealand (ICNZ), a political lobby group for general insurers, said the report indicated improvement was needed before the new laws came into force.
"This gives the insurance sector the opportunity to work proactively with the FMA to address all areas of concern, so we can meet their expectations at that time," he said.
But he said since the review began in late 2019, insurers had worked to lift standards.
"We do not believe that the report reflects the current state for ICNZ members," he said.
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