Southern Cross cautioned by FMA for neglecting to apply advertised discounts

The Financial Markets Authority (FMA) has issued warnings to Southern Cross Medical Care Society and Southern Cross pet Insurance for failing to apply advertised discounts to their insurance products.

Both entities have accepted they had breached the fair dealing provisions of the Financial Markets Conduct Act by making false or misleading representations. The FMA determined the cause of each issue was due to poor controls and/or technical errors. The FMA found no evidence of deliberate misconduct.

Southern Cross Pet Insurance initially reported to the FMA in November 2022 some of the contraventions. Further enquiries from the FMA and an internal review in the wider Southern Cross Group established the extant of the contraventions.

SCPI failed to correctly apply the following discounts:

·         Additional pet discount

·         Direct debit discount

·         Southern Cross membership discount.

SCMCS failed to correctly apply the following discounts:

·         Free child discount

·         Healthy lifestyle rewards discount

·         Low claims discount.

The total amount of Southern Cross Pet Insurance premiums overcharged was $424,508, affecting 7,542 customers. Southern Cross Medical Care Society overcharged $161,547 across 1,957 customers.

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Legal and regulatory update for the life and health insurance sector

21 March 2024 - Insurance Contracts Bill had first reading in Parliament. https://bills.parliament.nz/v/6/fcc98f82-e1f8-4aa4-6c02-08dc494421e8?Tab=history

25 March 2024 - The Reserve Bank of New Zealand has published an analytical note proposing improvements to the methodology used by the Reserve Bank of New Zealand  to assess labour market indicators of inflationary pressure. Measuring inflationary pressure from the labour market can be improved by watching a narrow set of four high-quality indicators: 1) the job transition rate (the share of workers switching between jobs), 2) the job vacancy-to-unemployment ratio, 3) the unemployment rate, and 4) a survey measure of labour as a limiting factor for business production. https://www.rbnz.govt.nz/hub/news/2024/03/improving-how-we-measure-inflationary-heat-in-the-labour-market

26 Mar 2024 - The Reserve Bank of New Zealand has published Guidance for our regulated entities on managing climate-related risks.  https://www.rbnz.govt.nz/hub/news/2024/03/guidance-issued-on-managing-climate-related-risks

26 March 2024 - The Financial Markets Authority has issued warnings to Southern Cross Medical Care Society (SCMCS) and Southern Cross Pet Insurance (SPCI) for failing to apply advertised discounts to each entities’ respective insurance products. The FMA is satisfied, and both entities accept, that they breached the fair dealing provisions of the Financial Markets Conduct Act by making false or misleading representations. The representations relate to the failure on each entities’ part to correctly apply advertised discounts to affected customers’ invoices, resulting in overcharged premiums. The FMA determined that the cause of each issue was due to poor controls and/or technical errors. 
SCPI made an initial report to the FMA in November 2022 disclosing some of the contraventions and later reported more details. Following these disclosures, further enquiries from the FMA and an internal review in the wider Southern Cross Group, the extent of the contraventions was established.

SCPI failed to correctly apply the following discounts:
Additional pet discount
Direct debit discount
Southern Cross membership discount.

SCMCS failed to correctly apply the following discounts:
Free child discount
Healthy lifestyle rewards discount
Low claims discount.

The total amount of SCPI premiums overcharged was $424,508, affecting 7,542 customers, approximately 1.28% of its customer base. SCMCS overcharged $161,547 across 1,957 customers, approximately 0.2% of its customer base. 

https://www.fma.govt.nz/news/all-releases/media-releases/fma-warns-southern-cross/

28 Mar 2024 - The Council of Financial Regulators has released an updated Regulatory Initiatives Calendar for the financial sector for Q1 2024. https://www.cofr.govt.nz/files/regulatory-initiatives-calendar/regulatory-initiatives-calendar-q1-2024.pdf

28 Mar 2024 - The FMA is warning the public to be cautious after fake documents claiming to be issued by the FMA were sent out as part of what appears to be a ‘recovery scam’ - where previous victims of financial crimes are targeted by criminals promising to help get lost money back. https://www.fma.govt.nz/library/warnings-and-alerts/

28 Mar 2024 - DIA encourages reporting entities to get RealMe verified before annual reports are due. From 1 July 2024, you’ll be able to file your AML/CFT annual report via AMLOnline. https://www.dia.govt.nz/AML-CFT-Get-your-RealMe-verified-early-this-annual-reporting-season

28 Mar 2024 - The FMA has said that overtime they will assess whether their regulatory framework needs strengthening to support better deployment of Generative Artificial Intelligence. https://www.fma.govt.nz/library/opinion/gen-ai/

28 Mar 2024 - The Commerce Commission sees "good reasons" to recommend designation of the interbank payment network to Commerce and Consumer Affairs Minister Andrew Bayly. https://www.interest.co.nz/banking/127024/commerce-commission-wants-more-influence-over-interbank-payments-potentially

A year in review

2023 has been a difficult year for consumers and businesses alike. Conditions are similar to last year, with inflation remaining high, resulting in a continuing cost-of-living crisis, the OCR set at 5.5% and the RBNZ not ruling out a further hike next year, and housing prices only just starting to rise. How has that affected the insurance sector? Combined with an increase in regulatory red-tape tangling up banks, there has been a spike in lapse rates that very much looks like it is driven by the same forces.

NZ was badly affected by natural disasters this year, with insurers having to fork out $3.5 billion in general insurance claims for the Auckland Anniversary Weekend floods and Cyclone Gabrielle. Such heavy claims have impacted general insurers, perhaps part of the reason why Tower is looking to do a strategic review of its ownership structure.

It is this situation which greets the new National-Act-NZ First coalition government. They  have outlined a 100-day plan that includes: stopping work on the Income Insurance Scheme; introducing legislation to narrow the Reserve Bank’s mandate to price stability (removing the mandate to ensure maximum sustainable employment); signing a memorandum of understanding with Waikato University to progress a third medical school; disestablishing the Māori Health Authority; taking the first steps to extend free breast cancer screening to those aged up to 74; repealing amendments to the Smokefree Environments and Regulated Products Act 1990 and regulations; and setting five major targets for the health system. National promised to roll back the Credit Contracts and Consumer Finance Act (CCCFA) and to make changes to allow kiwis to split their KiwiSaver savings between different providers during the election campaign, so we will be watching how this plays out next year. In August, then National Party Leader, Chris Luxon, told the Financial Services Council conference that it was also their intention to repeal the Financial Markets (Conduct of Institutions) Amendment Act 2022. That hasn’t explicitly made it into the coalition agreement, but may possibly be covered by the planned regulation sector reviews to which the coalition commits under the Act Policy Programme. Although regulatory relief is often welcomed by the sector, so is long-term stability, so we have found views split on the proposed changes to the conduct law.

As of March 2023, all financial advice providers needed to have obtained their level 5 certificates to continue operating this year. We wrote about the impact of this on the market and just how many financial advice providers and financial advisers there are in the September 2023 Quarterly Life and Health Sector Report.

Accuro and Unimed members voted in favour of combining operations. Approval from the Reserve Bank of New Zealand is likely to come early next year. The Lifetime Group acquired Protection Solutions. Fidelity Insurance, formerly known as Westpac Life, was integrated into the Fidelity Life Assurance Company. In March 2023 Cigna NZ changed its name to Chubb Life Insurance New Zealand Limited (Chubb Life NZ) and is now trading under the Chubb brand. nib have told customers they are planning to amalgamate, with their health insurance company ‘nib nz limited’ and their life and living insurance company ‘nib nz insurance limited’ combining to form one single company known as nib nz limited. The acquisition of Partners Life by Dai-Ichi has been made more real by the appointment of new personnel and the announcement of Naomi Ballantyne’s change of role to come in 2024.  The Association of Financial Advisers (AFA) and the Financial Planning Association of Australia (FPA) have announced they will merge to form the Financial Advice Association of Australia. The Australian Competition & Consumer Commission (ACCC) denied the sale of Suncorp Bank to Australia and New Zealand Banking Group (ANZ).

There were some interesting court cases, with AMP settling with Australian advisers for A$100 million; MAS were penalised $2.1 million for making false and misleading representations to customers; Cigna was fined $3.575m for false and/or misleading representations.

There were lots of new faces joining the industry or changing roles this year.

• AIA New Zealand appointed Michele Embling as an independent non-executive Director; Ben Lovelock as Chief Risk Officer; Shaun Baird as Chief Financial Officer; Maddie Sherlock as Head of Customer Operations; Andrew Anisi as Senior Manager Contact Centre & Business Solutions; Aaron Gilmore and Katie Hunter as AIA Vitality Coaches; Calvin Romeo to the role of head of ASB Partnership.

• Asteron Life appointed Kirsten Young as the National Manager Adviser Distribution.

• Chubb Life board chairman Steven Fyfe retired and Paul Brock took over his role as Chairman while Linley Wood joined as an Independent Director to the board. Chubb appointed Monique Ravening as its new Head of Underwriting and Erica Hamer as Chubb's new Wellington-based Business Partnership Manager. Adit Witjaksono was appointed as property manager for Australia and New Zealand.

• Fidelity Life made some new appointments to key roles.  David Winspear was appointed as Head of Channel Strategy, Michelle Doyle appointed as the new Head of Solutions and Kylie Oldham appointed as Senior Group Insurance Business Manager.  Leigh Bennett was promoted internally to the role of Head of Underwriting and Mat Bark was appointed as Head of Channel Enablement. Giselle Baker was appointed as Head of Data and Analytics. In October, Ian Clancy acted as the Acting CEO until Campbell Mitchell was bought on board as the new CEO after Melissa Cantell resigned. Sam Kelly was appointed as Head of Regulatory Affairs.

• MAS appointed Matt Harvey as Chief Distribution and Marketing Officer, Craig Ward as Chief Innovation and Digital Officer, Dan Mead as an Investment Manager.

• nib appointed Stu Crowther as new National Manager – Adviser Distribution; Ian Sargeant as National Manager – Group, Partnerships & Strategy; Chris Carnall as Head of Distribution; Stan Bennetto as Group Health Business Development Manager.

• Partners Life appointed Gemma Vivian as GM Adviser Engagement; Gareth Allen as Senior Manager Adviser Partnerships. Naomi Ballantyne announced her retirement from Partners Life in March 2024.

• Southern Cross Healthcare appointed Mark Phillips as Chief Digital Officer; Dr Erica Whineray Kelly as Transformation Lead for Women’s Health; Jo Fair as Chief of People & Culture; Monica Goldwater as Chief Nursing Officer.

• Suncorp New Zealand appointed Suraiya Phillimore-Smith as its new Chief Customer Officer. Lindsay Tanner was appointed as an independent director of the firm’s three boards.

• Justine Gilliland was appointed to Unimed's board.

• ASB appointed Carl Ferguson Chief Financial Officer and Rebecca James as its new Executive General Manager of Business Banking.

• Westpac welcomed a new GM of Consumer Banking and Wealth, Michael Norfolk.

• Kiwibank appointed Julia Jack as chief purpose and brand officer.

• TSB appointed Kerry Boielle as new CEO after Donna Cooper resigned. Penny Burgess was appointed General Manager Customer Delivery; Molly Auva'a-O'Brien as General Manager Operational Excellence.

• AMP appointed Blair Vernon as CFO.

• Tim Grafton announced he’s stepping down as chief of the Insurance Council of New Zealand next year.

• Tony Dench started as Financial Advice NZ’s interim CEO following Katrina Shanks’ departure to head up The Australian and New Zealand Institute of Insurance and Finance (ANZIIF). Sonja Barrett was appointed as Financial Advice New Zealand’s Board Member Director (Risk) and Peter Fa’afiu was appointed as an Independent Member Director on the Financial Advice NZ Board. Stefanos Boulieris joined Financial Advice NZ, communicating online webinars and the upcoming conference in 2024 and Sarah Maxwell joined as Communications and Social Media Manager.

• Tim Tez and Sarah Phillips joined ANZIIF’s Board of Directors.

• Anna Scott, Ana-Marie Lockyer and Campbell Mitchell all joined the board of the Financial Services Council (FSC). David Bishop was appointed to the Chief Marketing Officer role.

• The FMA appointed Daniel Trinder as Executive Director – Strategy and Design; Michael Hewes as Director for Deposit Taking, Insurance and Advice; John Horner as Director of Markets, Investors and Reporting; Peter Taylor as Director Specialist Supervision and Response; Stuart Johnson as Chief Economist; Sharon Thompson as Executive Director – Transformation and Operational Delivery.

• Graeme Edwards took on the role of Lifetime Group director and chairman and David Haintz was appointed as an independent chairman of Lifetime Group Holdings and its subsidiaries.

• Craig Wagstaff joined New Zealand Home Loans (NZHL) as its new general manager for franchise, distribution, and marketing.

• The Adviser Platform (TAP) appointed Pooja Shetty as Senior Operations Specialist and Naz Mistry as a Compliance Specialist and Adviser Support.

• Some big names in the industry have retired, with David Haak, Tony Arthur, and our very own Rob Dowler retiring

Here’s to another exciting year in 2024!

PWC summarise changes outlined by the CoFI regime

PWC have produced a useful summary of the key changes outlined by Financial Markets (Conduct of Financial Institutions) Amendment Act (CoFI), which was passed on 29 June 2022. License applications opened in July this year and CoFI will come into force in March 2025. The Ministry of Business, Innovation and Employment (MBIE) is working on regulations to support the CoFI regime, which are expected to be released later this year.

In short, the key aspects of the CoFI regime are:

·         Promoting good conduct and culture.

·         Complying with a set of duties and obligations that help protect customers and promote good conduct.

·         Financial institutions need to be licensed by the Financial Markets Authority (FMA) to operate in New Zealand.

·         The FMA has increase supervisory and enforcement powers.

·         A focus on delivering good outcomes for customers.

Penalties for breaches of CoFI’s regulatory requirements include:

·         The FMA taking enforcement action which could include imposing fines, giving directs to take corrective action or taking the institution in breach to court.

·         Maximum penalties of $5 million for companies and $500,000 for individuals.

·         The FMA could order compensation for customers.

·         The FMA could suspend or cancel the licence of a financial institution.

·         Reputational damage.

PWC set out a helpful guide of activities you can do now and in future to prepare for COFI. The FMA has information on Fair Conduct Programmes and more detailed information on CoFI, including how to apply for a financial institution licence here.

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Legal and regulatory update for the life and health insurance sector

6 Jun 2023 - The Australian Prudential Regulation Authority (APRA) has released the finalised reporting standards for insurers impacted by the introduction of the Australian Accounting Standards Board 17 Insurance Contracts (AASB 17). https://www.apra.gov.au/news-and-publications/apra-responds-to-consultation-on-minor-amendments-to-insurance-reporting

8 Jun 2023 - The FMA has filed civil proceedings against AA Insurance Limited for failing to apply multi policy and membership discounts, as well as guaranteed no claims bonuses to eligible customers’ premiums, resulting in $11.12 million in overcharges. https://www.fma.govt.nz/news/all-releases/media-releases/fma-files-proceedings-against-aa-insurance-for-alleged-fair-dealing-breaches/

8 Jun 2023 - MBIE: Regulations have been made to support the Financial Markets (Conduct of Institutions) Amendment Act 2022. Links to the regulations are below, along with details of an online information session that MBIE will be holding regarding the sales incentives regulations.

Links to the regulations

The regulations can be found at the following links:Financial Markets Conduct (Conduct of Institutions) Amendment Regulations 2023: https://www.legislation.govt.nz/regulation/public/2023/0123/latest/whole.html

These regulations cover the sales incentives prohibition based on volume or value targets and other provisions to ensure the regime works as intended, including provisions setting the requirements for participants in the Lloyd’s insurance market.

Financial Markets Conduct (Fees) Amendment Regulations 2023: https://www.legislation.govt.nz/regulation/public/2023/0124/latest/LMS829791.html These regulations set the licensing fee for financial institutions applying for a market services licence under the regime.

A commencement order has also been made, which will bring the regime into effect from 31 March 2025. As you may be aware, financial institutions will be able to apply for a licence from the FMA from 25 July 2023 and must be licensed by 31 March 2025 to continue providing relevant services to consumers. The FMA has advised that by submitting an application as early as possible, applicants will give themselves the best chance of ensuring their licence is processed before 31 March 2025. The commencement order can be found at the following link: https://www.legislation.govt.nz/regulation/public/2023/0122/latest/LMS830584.html