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Ninth Message from FSC about future changes coming

Here you can find the ninth message from the FSC about the future changes coming to financial advice regulation. You can find the first eight messages here

MBIE released a consultation paper about licensing fees and levies in December and you have until the 22nd of February to give feedback. Submission details are available here

Fidelity Life: Update on investment policies transfer

Below is an update from Fidelity Life to advisers:

Back in late September we let you and your customers know about a delay in our proposal to transfer Fidelity Bond, Powersaver, Gold Medal and Just for Kids policies to Lifetime Income Limited (Lifetime Income). 

Based on feedback we received, we’ve revised our proposal with customers’ best interests in mind:

  1. Insurance - any optional insurance benefits will now remain with Fidelity Life - they won’t be transferred to Southsure Assurance Limited as initially proposed. 
  2. Investments - the underlying investment assets will be transferred to Lifetime Income and held on policyholders’ behalf by an independent custodian.
  3. Timing - we’ve pushed back the proposed transfer date to 1 April 2019. 

It’s important to note that, other than the underlying investment assets moving from Fidelity Life to Lifetime Income, the proposed transfer will not result in any changes to policy terms and conditions. 

Asteron Life doing their bit to meet compliance standards

Recent message from Asteron Life:

Making changes to meet the FSC Code of Conduct

As a member of the Financial Services Council, Asteron Life has adopted the FSC Code of Conduct, which comes into force from 1 January 2019.

Code Standard 7 requires members to 'maintain appropriate internal processes for explaining the risks to customers of replacing or retaining an existing product or service'.

To meet this standard we’ve amended our welcome packs for newly issued policies and are making changes to our application forms to disclose replacement business risks and refer customers to their financial adviser to help guide them through these risks. 

We’ll extend the free look period by 10 days, on request - in case your client needs more time to gain comfort that these risks are being managed appropriately. 

While in many circumstances it may be in a customer’s best interests to replace existing insurance policies with new policies, it’s important they’re well informed and understand the implications of their decisions. 

As regulated financial advisers, you’ll understand this and the importance of being able to demonstrate that you’ve provided appropriate guidance for those of your clients replacing their insurance policies. We trust that our changes will demonstrate a united front in our partnership with you in bringing about the best result for every customer.

Kind regards

Graham Hill

What are conduct obligations as distinct from financial advice?

What are conduct obligations as distinct from advice obligations? MBIE’s review of insurance contract law includes insurer conduct in its scope and takes a longer view of the need to ensure good conduct in the insurance market.

Pondering where the review may head, I reviewed ASIC’s reports on direct sales processes. Those clearly identify practices that fell short of acceptable, and details what it sees as effective remedies. A good reference point is there report “Rep587: The sale of direct life insurance” and “Rep588: Consumers experiences with the sale of direct life insurance”. The conduct obligations envisaged by the reports include:

(a) Provide adequate explanations of key exclusions and future cost
(b) Stop pressure selling
(c) Introduce a deferred sales model for downgrades
(d) Stop using techniques that frame consumers’ choices
(e) Establish a clear target market for limited value products and only sell these products where there is genuine consumer need
(f) Strengthen protections for vulnerable consumers
(g) Ensure that automatic cover increases do not exceed what the consumer can claim

Those all look like obligations distinct from the provision of financial advice as defined in our law, and hence apply to product providers even if not providing advice. If you group them under main headings they can be further summarised as:

• Sales practices must protect vulnerable consumers – which is probably not just an insurance-related issue (items b, d, and f)
• Information asymmetry must be addressed throughout the sales process (items a, c, and e)
• Eligibility is the responsibility of the insurer – including both at policy commencement and during the life of the policy (item g)


Sovereign Life + One Campaign Extended

Sovereign have extended their Life + One campaign that was due to finance on the 31st of December 2018. The extension means that the campaign “Life + One” providing customers a 10% discount on their policies premium if they meet the campaigns eligibility criteria will now run until the 31st of May 2019. These discounts are automatically applied on Quotemonster when the eligible benefits and cover amounts are being quoted. 

Buying insurance after you have been diagnosed with a problem?

It sounds ridiculous, but it does happen. Clients call advisers and ask if they can buy insurance, or reinstate lapsed insurance, after they have been diagnosed with a serious illness. Most insurance advisers have had this experience. It is worth recounting as an antidote to those people that believe every claim by a customer is valid - as it turns out that quite a few people will try to buy cover for certain events, not uncertain ones. Some of this will be a genuine error, some will be a deliberate attempt to obtain a claim payment where none is due. Here is a more recent example from the general insurance world - link.

User manuals

There are guides to home maintenance. I met a builder who told me that after every major storm he walked around his home checking for damage, and then got up and checked the gutters. It was a natural process and meant that several times a year, more in winter than in summer, he would check over the roof, gutters, cladding, windows, down-pipes, and wires wires, and drains. It made sense, I still do it. 

Tony Vidler wrote an excellent article on his blog a little while back arguing that other complex products come with instruction manuals - so why don't ours? I agree, and it got me thinking - what would an instruction manual for a good insurance programme look like? It depends, but I suspect the checklist might look a bit like a good annual review. I also like charts that show a list of the contingencies a family might be insured against and a tick if they are insured, with details of the sum insured and who to call to inquire about a claim process. Maybe both, alongside a handy list by the phone of people to call in emergencies.

What do you think should be in an insurance user manual?


Sian Johnson joins Fidelity Life as Head of Underwriting

Fidelity Life has announced the key appointment of Sian Johnson as Head of Underwriting and New Business.

Sian will replace Stephen Potter and will start her new role on the 21st of January.

Sian joins Fidelity Life from Partners Life where she held the positions of GM Claims and Underwriting and most recently Chief Underwriter.

“Sian brings both leadership and innovation capabilities to our already strong underwriting and new business teams. With our strategic focus on operational excellence, Sian’s almost 20 years in the insurance industry and deep operations experience and knowledge makes her an ideal fit for this critical role.” says Fidelity Life Chief Operations Officer Neale Watling


Looking back on 2018 - Minister Faafoi stands out

Looking back on the year, one of the stand-out performances has been Minister Faafoi. I noticed that recently David Farrar of Kiwiblog (a staunch National Party supporter) rated Faafoi as one of the most effective ministers in parliament. Many in financial services would agree.

Officially Minister Kris Faafoi was elected as a Minister of Civil Defence, Commerce and Consumer Affairs and Associate Minister of Immigration, in the current Labour-New Zealand First coalition government. He has already demonstrated ability and was recently rewarded with the broadcasting portfolio with the recent resignation of Clare Curran MP. Minister Faafoi has delivered a competent performance in every public speech or interview I have seen. That includes more comfort in going ‘off-script’ than was shown by predecessors.

Faafoi’s relationship with the media has also been much easier, as it should be given his background as a TVNZ journalist. That background may also explain his ability to quickly come to grips with the essential details of complex policy. Another advantage is his long-term interest in the problems of people dealing with pay-day lenders and consumer finance. Although not directly related to financial advice, or insurance law reform, they are adjacent areas, and mean broad familiarity with the financial services industry. Reflecting on Faafoi’s knowledge of some of the most difficult areas in consumer finance, it is probable that the Minister understands what really bad conduct looks like. He is likely to be aware of the importance of good conduct to protect potential customers – some less able, and therefore more vulnerable than others.