Major problems in life insurance industry

Consumer NZ chief executive Sue Chetwin said the Financial Markets Authority (FMA) and Reserve Bank review of the industry has found “extensive weaknesses” in the life insurers’ systems and a lack of focus on good customer outcomes.

Ms Chetwin said the review confirms problems in the industry that Consumer NZ’s own research has highlighted, including the major risk that commission-based selling has for consumers.

“Sales incentives increase the risk consumers will be sold a product simply because the sales rep will earn another commission. There may be no benefit to the consumer at all,” she said.

The report also singles out products, such as funeral cover and credit card repayment insurance, that provide very poor value to consumers.

“Our investigation of these products shows they provide limited benefit and can cost consumers more than the value of the cover.”

Ms Chetwin said major changes were needed in the industry to improve consumer protection. This needed to include stronger supervision of insurers and a shake-up of complaints schemes for the industry.

“The review shows insurers are doing an appalling job at addressing problems in the industry. The protections so far put in place for consumers aren’t working and we can’t rely on the industry to put its own house in order,” she said.

Insurers have been given to 30 June 2019 to report to the FMA and Reserve Bank on what they’re doing to address problems.

Consumer NZ is calling for reform of the insurance industry to be a priority.