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FMA on banks: 'going to the edge of the law'

Newsroom has this article, with a nice, dynamic photo of Rob Everett, Financial Markets Authority CEO, talking about how Banks are going to the edge of the law. The article also introduced my favourite phrase, from Adrian Orr, Governor of the Reserve Bank, called an 'essay writing competition'. If that's the case it is also a very serious form of competition. Not only are the resources consumed in preparing the essay very large - and I know many of the people involved, and they are very, very busy right now - but the stakes are high. As has been seen in Australia, failing to be completely honest and clear with your regulator can have terrible consequences: look at AMP's experience there.

The big picture with the FSC

The FSC invited members to consider the big picture. Although the main focus of the meeting was to bring together people working on various industry committees, this talk by Kristy Redfern, General Manager Corporate Services & General Counsel of AIA, was great. I did not know that Kristy has represented New Zealand at Hockey.

Kristy Redfern at FSC

Congratulations to CIGNA on commencing a process to buy OnePath Life - UPDATED

Congratulations to CIGNA, Gail Costa and her team should be proud of the deal to acquire OnePath Life. CIGNA's statement covers some of the details:

"Cigna and ANZ have entered into an agreement for Cigna to acquire OnePath Life NZ Ltd. This presents a rare opportunity to significantly grow our business – making us the third largest life insurance provider in New Zealand, with a combined staff of around 500. The acquisition is subject to regulatory approval and it is expected to take 6-9 months to complete the transaction.

The purchase includes a 20-year strategic alliance for Cigna to distribute insurance products via the ANZ bancassurance channel. In addition, Cigna will also acquire OnePath’s wealth specialist and independent adviser channels, which substantially broadens our distribution capability. This acquisition will more than double our size, and enable us to offer wider solutions and become more agile and responsive to our customers’ needs.

We see the OnePath business as a great complement to our existing business. We are aligned on the importance of people, culture and a philosophy of doing right by customers.

This investment in our business is a clear indication that Cigna Corporation is committed to growing our business in New Zealand and has confidence in our ability to execute this transaction."

At this stage that leaves the option open for CIGNA to operate in the adviser market by continuing OnePath Life's offer in some form. It also adds more bank distribution, an area in which CIGNA is already skilled at managing.

The acquisition by CIGNA of OnePath represents another datapoint in a new trend - the return of a once-specialist insurer that had been sold to a bank, back to ownership by a specialist insurer. The same dynamic was at work in AIA's acquisition of Commonwealth Bank's insurance businesses. Other similarities may be found, but the differences are more significant. OnePath is large, but not the scale of Sovereign.

For those of you with a focus on the advice market, you may have to refer to the quarterly life report to refresh your memory as to the size of the CIGNA business: $86million in-force at the end of December 2016, compared to OnePath Life's $199m in-force at the end of September 2017. But internationally, CIGNA dwarfs OnePath Life, of course, and can bring skills and expertise from around the world to help maximise the opportunity. The deal gives CIGNA enhanced access to the channels that currently make up about 60% of all new business production.

Commerce and Consumer Affairs Minister Kris Faafoi statement on soft commissions

Commerce and Consumer Affairs Minister Kris Faafoi is "disappointed" life and health insurers spent $34m on soft commissions in two years, but won't commit to banning them. Whatever your view of soft commissions, the minister is smart to leave that decision to regulators expert in the sector. We have regulatory structures, regulators employ experts, and they are the ones to make decisions on such matters. Given the FMA's recent programme of work, and the powers to be granted to them under the Financial Services Legislation Amendment Bill, I expect that when they have the power to set licence conditions for financial advisers, then soft commissions will be targeted. That isn't far away, and is likely to produce outcomes carefully focused on supporting good conduct and culture, rather than just, say, banning one activity. Here is the link to Minister Kris Faafoi's take on the recent announcement of soft commissions in the life and health insurance industry from the FMA.

Data-based compliance assessment: market cleanliness summer scholarship study published

Victoria University student Anna Hensen carried out some research supported by the FMA and NZXR. Click here to read more.

The study assesses the cleanliness of New Zealand’s equity markets based on the prevalence of abnormal price movements ahead of material announcements. This is an established measure of equity market cleanliness.  The market cleanliness statistic (MCS) is indicative of the level of insider trading in a market, but is not a direct measure of the level of insider trading. This is the first study to examine MCS in the New Zealand equity market.

The interesting this is how much regulators can learn from data-based methods. If they can learn a lot using big data, sponsoring studies, and meta studies - why can't you? Regulation technology could allow you to assess every new insurance case you receive, for example, against a variety of advice metrics, and provide some automated screening so you can focus your human compliance resources on the riskiest cases. If you are interested in ways to assess conduct risk using data analysis techniques, then please drop me a line. 

Churn - technology-awareness, satisfaction, and age all make it worse

In the ongoing quest to find ways to improve customer loyalty CapGemini, in their World Insurance Report, have handed out some more bad news. The link between satisfaction and likelihood of switching is obvious: the less happy with a service I am, the more likely I am to seek an alternative. The link to 'tech-savvy' is probably just an added dimension of that, but an important one to tease out: consumers exposed to large, global brands, with smart, easy-to-use technology platforms, are likely to look at their current insurer and the comparison is not flattering. That's an added reason to look around. Those consumers tend to be younger - for which we might as well substitute 'fitter' or 'better underwriting risks'. All suggesting that consumers are going to be harder to please in the future, rather than easier. Having written that down, it's obvious really. Which means that, just waiting, for, say, a regulatory solution to our customer loyalty problem, doesn't look like a great strategy. The strategy has to put the customer back into the middle of the picture.

New FSC Event - Advice at the Crossroads Breakfast


The Financial Services Council (FSC) are pleased to launch the Advice at the Crossroads breakfast event on Tuesday, 26 June 2018 with guest speaker Graham Rich, Portfolio Construction Forum along with a fantastic panel of speakers. The FSC Distribution Committee has been hard at work developing the programme and securing our four great panellists:

  • Graham Rich, Portfolio Construction
  • Katrina Shanks, Financial Advice New Zealand
  • Russell Hutchinson, Chatswood Consulting
  • Rebecca Sellers, Melior Law

The programme aims to explore global trends in advice, service and consumers and look at what this means in New Zealand.

To register for this event click here.

For more information on this breakfast event please see this Advice at the Crossroads flyer.  Download Crossroads-Breakfast-INVITE-24.05.18

Friday Fun: 10 Unusual pet insurance claims

Here are Southern Cross's top 10 unusual pet insurance claims for 2017.

  • Treatment for pentobarbitone toxicity due to digging up a recently euthanised pet (swiss shepherd).
  • Surgery to remove 100 cotton buds, a pair of underwear, a bra strap and clips from the stomach and intestine (labrador retriever).
  • Treatment due to potential blockage from eating nail separators (ragdoll cat).
  • Surgery to remove ingested razor blade head (retradoodle).
  • Intestinal blockage from eating duvet cover and lining (German shepherd).
  • Fish hook removal (miniature schnauzer).
  • Surgery to remove ingested rubber glove (fox terrier).
  • Surgery for hip dislocation after an owner fell on the dog (miniature poodle).
  • Inducing vomiting after dog ate metal teeth from hairbrush (border collie).
  • Treatment for rapid heart rate and bruising after inhaler exploded in mouth (great dane).

Click here to read more. 

FMA Letter to Insurers

The FMA has sent a letter to insurers seeking answers to questions about compliance with conduct expectations. The letter closely follows the approach of the letter recently sent to banks, and directly references issues raised by the Australian Royal Commission. The letter asks insurers to refer to the FMA's guide to conduct and provide details of work that they are doing to identify and address conduct risks. It also references FMA thematic reviews, past and current, as a way of signalling the areas of particular concern. You may read the full release at this link: