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Customer understanding and demystifying — Clare Bolingford on FMA expectations of NZ life insurers

Page last updated: 30 Oct 2020

Clare Bolingford, FMA Director of Banking and Insurance

FMA Director of Banking and Insurance Clare Bolingford spoke to this year’s Financial Services Council “Generations” conference about the insurance sector, our expectations and our future work in this area.

This article is a summary of her comments.

One of the key challenges currently facing the insurance industry is the need to help customers understand how their policies work and exactly what it is they’re covered for.

Our recent experience with COVID-19 showed that a lot of people just did not understand their insurance policies, with many customers calling their providers to ask exactly what it was they were covered for.

Customer understanding is a really important part of demystifying the complexity of some of these insurance products, and helping people recognise their value. This is where the value of seeking independent advice lies – talking to an adviser at the outset and having regular dialogue with them.

Different terms have been used across the industry for different types of relief during the pandemic, which certainly doesn’t help with customer understanding. This is a real opportunity for the industry to come together, think about some of these issues and consider how we can tackle them.

To convince us as a regulator that they’re really putting customer interests first, we’re asking insurers to focus on customer understanding, internal culture and their own systems and processes.

The FMA wants to see life insurance companies elevate their management of conduct risk to provide the same level of focus as their management of financial risk.

One good starting point for any insurer is to “do the basics well” — as we’ve seen it is often poor processes that cause unintentional disadvantage to customers.

This means insurers should look carefully at any major changes they make to their business, and ensure they are properly supported with the right systems and processes to achieve the expected performance.

Last year the FMA and Reserve Bank of New Zealand released the culture and conduct review of 16 life insurers, criticising sales incentives and high upfront commissions for life insurance advisers, as well as finding extensive weaknesses in life insurers’ systems and controls. This was accompanied by poor governance and management of conduct risk, and a lack of focus on the customer.

While we don’t often find that there has been an intent to drive poor customer outcomes within these firms, the right systems just aren’t there to achieve them.

There needs to be more focus on the end customer, not just on the distribution channel. We’re seeing initial commissions at the moment at an all-time high, and you have to ask yourself who is really benefiting from that?

It’s all about embedding a culture that is more customer-centric.

See reports from the conference at NBR here (paywalled) and Insurance Business here.