The Financial Markets Authority (FMA) and Reserve Bank of New Zealand (RBNZ) are due to release their culture and conduct report on life insurers next week, with commission-based sales expected to be a prime area of focus.
This follows the regulators’ Bank Incentives Structures review, which was released last November and found that incentives schemes in banks were ‘highly sales focused’ and current controls appear to be ‘ineffective’ at mitigating conduct risks. It also found that senior management do not seek out or receive significant information on the conduct risks posed by incentive schemes.
The FMA said at the time that it expects boards and senior management to be proactive in identifying conduct risks, and instructed banks to remove all sales-based incentives for salespeople and managers. The Financial Services Council (FSC) says that it is ready to ‘engage positively and constructively’ with this stage of the review, which is focused on insurance.
“The FMA and RBNZ have been clear over the past few months that there will be a number of issues for the industry to consider and address,” FSC CEO Richard Kiplin said.
“We expect that the report will highlight a numbers of areas where further action is required.
The reviews by the regulators have been thorough, and both the FMA and RBNZ are to be commended for the robust and appropriate process they have followed to date and how they have engaged with the industry during the review.
We expect that the report will highlight a numbers of areas where further action is required.”
Shine Lawyers associate Tim Gunn says the current system allows for conduct risks to go unmitigated, and that customer interests must be placed at the centre of the broker-consumer-insurer triangle.
“If you have a broker who has two more policies to sell before they get a trip to Fiji for their family, there’s not a lot of incentive there to act in the best interests of the customer,” he explained.
“People are also buying life, health and income protection policies as part of a mortgage through people who work at their bank, and those people are not sophisticated or experienced enough to understand their own duties to those clients. There should be more effort put into looking at those relationships.”