Samantha Barrass, FMA Chief Executive, keynote speech at the IFSO Conference on Fair Conduct at 4 Points by Sheraton, Auckland on Wednesday, 22 March 2023.
(Notes may differ slightly from speech as delivered)
E ngā mana, e ngā maunga, e ngā hau e whā, tēnā koutou katoa
Nō Ingarangi ōku tupuna
Nō reira, ka mihi ki te whenua o Greenwich me te awa Thames.
Ko Ngāti Rānana ki te Pitonga te iwi
I whānau mai au i Rānana
Engari i te wā e tamariki ana ahau, i tipu ake au, ki Ōtautahi
Ko Te Whanganui ā-Tara taku kāinga noho nāianei
Ko Samantha Barrass taku ingoa
Ko taku mahi ki Te Mana Tātai Hokohoko, ko te Mana Whakahaere
Nō reira, tēnā koutou, tēnā koutou, tēnā koutou katoa
Ka huri au ki te reo Ingarangi
Insurance - and the critical need to be properly protected and insured in times of emergency and disaster – has come to the front of national attention in recent weeks.
While we have all reeled from the harrowing scenes, and tragic stories, resulting from both the Auckland floods and then Cyclone Gabrielle, it’s vital to remember the core role that financial services and insurance plays in rebuilding people’s lives.
In our calls with insurers and intermediaries over the past few weeks, we have been heartened by the rapid response to these events.
We have seen claims staff deployed into community evacuation centres, loss-adjusters brought over from Australia, proactive communications to policyholders, and emergency funds established to support those impacted.
We would like to acknowledge the critical role the insurance industry is playing and will continue to play in helping New Zealanders to recover. Thank you.
The FMA recently wrote to the leaders of the insurance companies to express our support for their efforts in supporting customers through these crises.
We also underlined the importance of continued good conduct in dealing with customers at a time of heightened vulnerability, now we’re all entering the long grind of rebuild and restoration. And it is inevitable that during this “long grind” not everything will work out as expected or hoped for.
An open mindset for complaints
It is with that context that I would like to talk to you today about the value of strong complaints resolution processes and the continuous improvement opportunities that are inherent in an open hearted approach to complaints. Yes, insurance is a contract between the provider and its customers, but we all know it is much more than this, and to be successful for both parties there needs to be a strong and enduring relationship, based on trust.
Complaints are ‘moments of truth’ for your relationship with your customers. Handled well, we know they can deepen trust and enhance customer experience and customer advocacy. Handled badly they are ticking time bombs for your customers and your reputation.
Customer confidence in the quality of your complaint resolution is an important part of a strong consumer protection regime. That is why we are so interested in how you support customers to resolve matters when things go wrong.
So, I am encouraging you to adopt a genuinely open mindset to customer complaints. To see them as the gold they are, an opportunity not only to deepen trust within your relationship with customers but also to surface more systemic issues within your organisations.
Unfortunately, Kiwis are not big on complaining to businesses. They’re far more likely to tell friends and family about poor experiences than they are to formally complain to the organisation that has frustrated or disappointed them in some way. The FMA’s recent consumer experience survey tells us that many more customers have considered making a complaint than actually go through the process.
Complaints are your best opportunity to put things right, before you lose that customer. We also encourage you to think of complaints as a rich source of data, intelligence and insight. For example, they can be very useful indicators on where friction points are consistently occurring.
And even when complaints reach an impasse, as they sometimes do, this is where the work of the dispute resolution schemes is important. To work through issues and complaints that cannot otherwise be resolved and giving customers the forum of an independent third-party if they have reached deadlock. It’s essential that customers understand that is an option.
Links to your complaints process – as well as how to contact the relevant dispute resolution scheme when things can’t be resolved - should not be buried in your terms and conditions, but front and centre and clearly available to your customers.
The FMA’s recent consumer experience survey also told us that only just over half of those who complained were satisfied with the process. Leaving many disappointed with their experience. That’s something to reflect on there as you consider your fair conduct programme under CoFI.
An area like complaints resolution is a good place for firms to demonstrate how they are open and transparent with their customers on dealing with things when they go wrong or a customer isn’t wholly satisfied. This is an important part of delivering fair outcomes to your customers and something we will remain very interested in.
But fundamentally, I am encouraging a genuinely open, non-defensive, mindset to complaints – surface them, do not try to minimise them. This doesn’t just mean having a process in place, it also means being bold and proactive about showing customers how and where to resolve issues.
Connection to conduct regime
I do want to re-assure you that the FMA will not hold it against you if you seek to surface and deal responsibly with a higher proportion of your customers’ issues. Quite the opposite.
We want to see that you can point to how you are set up to resolve complaints, so that your customers feel listened to and treated fairly. And, that you have processes in place to take the learnings on board in your products and services going forward.
In particular, we are keen to know whether firms’ internal complaints processes are well signposted? Are customers given the impression that firms welcome the opportunity to put things right and understand where to improve? Are customers satisfied with the process, was it handled well, communicated well, was it easy to understand, fair and balanced, and is any necessary remediation happening in a timely way?
We also want to see that you are looking at the bigger picture of the complaints data you collate. Is it being analysed for systemic issues or recurring pain points with your customers. How is that fed back into the decision making of your firm?
And please don’t wait for the conduct regime to come into force to make changes. How insurance firms manage complaints in the long tail of the recent extreme weather events will be critical and a great way to build that muscle before the regime comes fully into effect.
Other elements of the conduct regime.
As I mentioned, complaints are a very useful indicator of potential issues in your business. But they are a lagging indicator. To give you a flavour of other things to consider as you prepare your fair conduct programmes, there are several other leading indicators that will be important to consider.
For insurers there are key areas where outcomes from your conduct should be front and centre of your thinking.
- Product design and distribution – As you design your products, will you be able to articulate the expected customer experience through the whole lifecycle of its use to customers? Who is the target market for the product? And, how suitable is the product for anyone that falls within your target? How will you test for whether your target market is the market you actually reach in practice? If you work with in-house staff or intermediated distributors, have you developed clear responsibilities and lines of accountability for the customer outcomes along the lifecycle of the product?
- Staff incentives and performance management frameworks – are you sure that the incentives you are building for all your staff are aligned with the conduct outcomes in your fair conduct programme? Are you sure there is no potential for conflicted conduct in the way your incentives and performance management – including promotion opportunities - are set up?
My concern around incentives is to think beyond just the roles that sales-based incentives can play in poor conduct outcomes, but also the importance of understanding how all of a firm’s processes and procedures and culture can, directly or indirectly, encourage either the right or the wrong behaviour by staff.
- Consumer communications - how often, how targeted and helpful are your communications to customers? Have you brought an understanding of your customers’ needs into the communication decisions? Is an annual review letter sufficient to maintain a strong understanding of long-term insurance needs for each customer, especially those in vulnerable circumstances?
As well as carefully considering which indicators you’re tracking to assure yourselves you’re meeting your conduct obligations, the equally important part of this work is how you’re taking those insights and consistently integrating them into your business as drivers of change.
The change we want to see is that the fair conduct programme, which is at the heart of the new conduct regime, drives a resolute focus on promoting, delivering, achieving and measuring, good customer outcomes. Our approach with firms will start with these outcomes and what they are doing to build their approach, strategy, processes, staff training and policies around those outcomes.
All firms will need to beef up their resourcing, capability and attention to ensuring their programmes and conduct risk frameworks are fit for purpose and do not appear to reflect a minimalist response to compliance. All firms will particularly need to think on the question: “Do all our staff understand our fair conduct programme and what it means for their work?” Because it will be through your staff – not the written version of your fair conduct programme – that fair outcomes for your customers will be delivered.
Conduct and Culture remains front and centre for financial services
There are key lessons in the work we’ve done, and that firms have done, following the Conduct and Culture reviews of 2018 and 2019, including investigations, litigation and customer remediation.
We have had four civil cases in court resulting from issues uncovered in the Conduct and Culture reviews. These were fair-dealing cases for breaches of the misleading or deceptive conduct provisions in the FMCA, either by insurers, or banks selling insurance. One of these resulted in the FMA’s largest civil penalty to date, three and a half million dollars.
There are also lessons from the scale of the remediation undertaken by insurers since we started this work back in 2019. Insurers then were only able to identify $1.4 million of customer issues requiring remediation. Three years later, in October 2022, the dollar value was up to $43 million returned to customers, where it rightfully belonged. The remediation work insurers updated us on last year had impacted nearly half a million customers, in over 225 issues, resulting from creaking systems and weak controls. And firms tell us these resolutions only account for a third of the total issues they are reviewing.
My message to you from these examples is to carry on the work you’ve been doing to improve systems and controls. To carry on reviewing your legacy products to ensure they are fit for purpose and suitable for those customers. To focus your conversations internally on doing the right thing for your customers, and encourage these conversations at every level of your organisation.
To wrap this up I have four key points I’d like you to take away from my remarks today.
First, in my view insurers and brokers have done well in the crisis response to the floods and the cyclone. Well done – you’ve clearly been at your best and thrown all your resources at the problem. Thank you.
Second, as we settle into the next phase of the crisis response – and adrenaline fades and other business as usual pressures come back into view - this is the key time to keep up the determined focus on delivering for customers we’ve seen over the last few weeks. I ask you to maintain the same level of attention on following through consistently in the coming months, and years, of a long rebuild.
If you’ve been in crisis management, now is not the time to simply fall back to BAU – there is much work still to do. This is where the focus on good customer outcomes - and building systems to track these outcomes throughout your product lifecycle and customer experience will be crucial to your fair conduct programmes.
Third, complaints can be gold for improving customer experience. Make sure you’re regularly analysing the data for trends and identifying recurring themes that indicate a need to address a process issue. That’s something we’ll be looking for too.
And finally, you also need to make sure your fair conduct programme and risk regime considers leading indicators too. Make sure all your customers are at the heart of your product design work, that your incentive schemes do not result in conflicts leading to poor consumer outcomes, and that your customer communications are reflective of a long-term trusted relationship with a real person, not a transactional tick box exercise. Make sure all your staff can articulate how the work they do contributes to your fair conduct programme.
Overall, crises are actually a good time to build trust. Your customers and your stakeholders find out how you behave when the pressure is on, and they will not forget if you can prove that you were there for them in a moment of truth. But we are all at the start of that process after the flood and the cyclone, not the end.
We will all benefit from a country and an economy where any perception of a lack of trust becomes less of a barrier to customers taking up insurance. Clearly insurance is going to be a critical part of the discussion around how New Zealand adapts to climate change and having that discussion from a position of high trust with your customers will mean better outcomes for all of us. A strong conduct programme will be integral to achieving those goals.
Ngā mihi nui, Thank you all.