The Reserve Bank and the Financial Market Authority (FMA) report said the culture and conduct of the industry was lacking in many places and urgent change was needed. Sales incentive targets were also criticised, inducements which were "driving behaviour not in the best interest of consumers".
The likes of overseas trips and loaded upfront commissions, policies sold to people ineligible for cover, continuing to charge premiums for policies no longer in effect and policyholders not being effectively notified of
premium increases were all cited. Some of the particular instances were shocking. Commissions here were also much higher than in many European countries and Australia.
Life insurance is big business. New Zealand has four million policies, and premiums total $2.57billion a year.
Given the conclusions are hardly unexpected, the question should be asked why it took so long for an official report to be produced and for the industry to begin improvements. Is it only in the wake of the Royal Commission in Australia into abuses in banking that New Zealand started to move?
This is far too often the New Zealand way. Everybody knows there are issues but no-one tackles them. What have the authorities being doing for decades? Why had not the Reserve Bank or the FMA or successive governments exposed issues much sooner?
Recent examples abound where common knowledge has been ignored as New Zealand sticks its collective head in the sand and keeps it there. It has been known for many a year,
for example, that many overseas students coming to New Zealand were not here for an education but as an avenue for a job and
to immigrate. But the education providers did not want to slow
the flow and the Government turned a blind eye.
What about the lax enforcement by the Ministry of Transport into warrants of fitness? Staff knew abuse was widespread and merely flapped around wet bus tickets. Nothing effective was done for far too long.
What, too, about the aggressive sales incentives for bank staff? Until recently, they were acceptable, even though it must have been clear such practices put customer interests second to bank profits.
The life insurance industry response is standard. It is already making changes, and it has indeed done so as scrutiny steps up. It also admits there have been problems but these are being fixed. However, some are watering down the seriousness of the matter. One finance services consultant actually called the report "high level". "A lot of concerns were based on an absence of evidence of good management, rather then evidence of bad management or bad intent," the commentary said. Really?
The Government was geared up to step in immediately the report was released, saying it was fast tracking regulations. But is its response, like that of the Reserve Bank and FMA, broad and decisive enough? No-one seems to want to name the miscreants, the FMA saying it is hanging back because of possible prosecutions.
The offending banks in Australia were all named, and that, while dinting their reputations, has certainly not ruined them.
What the report found was not pretty. The incidents are widespread enough to cause genuine concern. The industry has failed to properly regulate itself, and more controls will be needed.
So, too, will more disclosure. If the public is to have confidence and if the market is to work fairly and properly, there needs to be much more information in the public domain - about commissions, about incentives, about profits, and payouts and reasons for payout refusals.
The murky world of life insurance needs to be illuminated by strong, consistent and deep shafts of sunlight.
