21aug insurance industry failing hero
23 July 2021

Insurance industry failing consumers

Investigation finds evidence of overcharging and poor-value products.

Another damning review of the insurance industry has found evidence of companies overcharging customers and selling poor-value products.

In its latest report, the Financial Markets Authority (FMA) slammed general insurers for their poor practices and lack of understanding of good customer service.

The FMA found many insurers were failing to monitor whether products were suitable for customers and continuing to sell poor-value products.

Problems found included insurers double-charging customers, not providing promised multi-policy discounts and significantly overcharging some premiums.

The review looked at 42 fire and general insurers, including companies providing house, contents, vehicle, travel and health insurance.

The FMA asked these companies to review their operations and demonstrate good conduct in their dealings with consumers. However, the authority said just two insurers – IAG and MAS – met its expectations.

“Prior to our inquiries, many firms claimed they were confident no significant issues existed. But this review has revealed a number of instances of poor conduct,” FMA director of banking and insurance Clare Bolingford said.

The authority concluded insurers weren’t prepared for the Financial Markets (Conduct of Institutions) Amendment Bill, which will impose good conduct obligations on the industry. The bill is currently before parliament.

We’ve been campaigning for tougher rules for the industry. Our investigations have found major problems, including a high level of complaints and low levels of trust.

Our latest survey found just 13% of consumers were confident they could trust insurers to give them good advice.

Many were unsure about the cover provided by their insurance policy and what they were getting for their money. Only 18% felt they fully understood the terms of their policies.

One in four had experienced a problem with their insurer. The top complaint was having a claim unreasonably declined, followed by poor customer service.

Pressure to accept a settlement with their insurer was reported by one in 10.

The FMA report provides further evidence of the need to regulate the industry and ensure it provides a fair deal for consumers.

Member comments

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Margaret P.
31 Jul 2021
Poor repairs

Insurance company seems to use the cheapest repair people which has left us twice with faulty insurance related repairs.

Bruce F.
26 Jul 2021
Insurance industry needs a good quality review

The insurance industry does need a good review as to their practices.

They have little or no knowledge of good customer service practices because it is driven by their desire to make BIG profits, not customer service. The industry sets the tone for what they believe is good service and then start congratulating themselves for dishing up a mediocre service.

There are many underlying poor attitudes within the industry that the authorities actually need to deal with, including looking deeper into the companies and their practices.

Don E.
25 Jul 2021
A Flawed Model

When I first purchased insurance none of the insurers were companies owned by shareholders. We then suffered the new right experiment with the mantra that efficiency was only possible if there was shareholder ownership.

Seems quite illogical to me. Previously “ownership” wasn’t something separate from the policyholders (not called “customers” then). The mutual structure meant that the total focus of all the staff from the CEO down was to provide for the best interests of the policyholders (who pay their salaries).

Now we have the ridiculous situation where (by law!) the prime focus of the staff from the CEO down is to act in the best interests of the shareholders. i.e. maximise premiums and minimise payouts, but it’s the policyholders/customers who pay them to do this!

After the Christchurch insurance debacle I switched my insurances from the former mutual insurers that had all demutualised and sold out to shareholders (and made record profits after Christchurch) to one of the last mutual insurers still standing, prepared for possible higher premiums. BUT premiums are lower! Service is better! Documents are clearer!

While all the other insurers declared that they could no longer insure a house for replacement (not so easy profits for them - blaming Christchurch) my new mutual insurer still has a full house replacement policy. It is obvious in all their communications that the staff are working for me, not some faceless profit taking shareholders.

I can't understand why an insurer needs to raise capital from shareholders - it is not a capital intensive operation - no factories, no machinery - all they need is an office and a computer system.

The private insurance company model seems to be a structure designed by investors to make money for those investors from other people's misfortunes.

A flawed model!

B R M.
24 Jul 2021
State insurance

Having been a long time client with State, with over $5000 in premiums,4 policies which is an annual payment. I wrote to CEO State offering monthly payments, the first letter was written a month ago, no replies have I received from State, I have tried depositing into the bank but each time it is refunded, to me. question becomes do they want money?or should I change to another company (not AIG)
Bruce Mac

Daphne Harding
24 Jul 2021
Excellent Service from AA insurance

Have just received very prompt service and close attention to my claim, even though I said that I would be away for a few days. The claim was approved and the car was ready the day after I returned.

andrea h.
24 Jul 2021
Health Insurance

I don’t think it is fair that my health insurance premium increases the following year if I have made a claim in the current year.
In a year that I make no claims, my policy doesn’t reduce the following year. This is unfair and unsustainable for our family.

Hugh W.
24 Jul 2021
Use an Insurance Broker

I have been using insurance brokers since 1991. Through retirements, and amalgamations the company names have changed but there has been continuous service. They are currently styled Abbotts. Brokers have an overview of the market and can do your bidding when claims arise. Private individuals that deal directly with insurance companies are still (in many cases) paying the cost of brokerage without getting its advantages.

Kaye M.
24 Jul 2021
Opting out requirements for proposed changes

It seems to be against everything decent to notify policy holders when an insurer wants to change their policy to just send a notice (usually very complicated) that the policy is to be changed to a different type, eg from agreed value to depreciated value, requiring the policy holder to opt out of the change if they dont want to accept the change. Many cannot understand the change or dont even realise that its going to disadvantage them so dont opt out. Only find out when they have a claim! Not good enough.

Chris F.
24 Jul 2021
Well deserved MAS

We have been with MAS for over 35 years. Great to see this article and MAS meeting the FMA expectations. Thanks

Peter S.
24 Jul 2021
Insurance industry discounts dont actually exist

The NZ insurance industry definitely requires regulation. The "discounts" for combined policies, age related discounts, and particularly home alarm and alarm monitoring discount dont actually exist. they are some times stated as say 10% but you will never see this quantified as a separate item on your final invoice. As my broker confessed and said .."The Monitored Alarm is an “underwriting Factor” not as such a discount" . So calling it a discount is in my view fraud.
The Broker industry and other middlemen needs cleaning up also ..they do not act for the insured but are acting for the insurance companies. The NZ public are being duped.