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Why the FMA and RBNZ life insurance sector report must be critical

Are you talking about the possible contents of the report on life insurance sector conduct due to come from the FMA and the RBNZ in the next week? This piece from Tamsyn Parker explores the possible contents of the report. Without guessing at specific comments, there is one thing we can be sure about: it will be a different view, and it will not be easy to swallow.

This is because the FMA and RBNZ have been challenged to come up with a different view, and so they must. 

That challenge could be identified as coming out of the Australian Royal Commission, but I think that would be too simplistic, and feeds a sense of confusion and possibly, even, a temptation to justify and point out the difference between the Australian and New Zealand environment.

For a long time - decades - major forces have been building up: consumerism, technology, complexity, and regulation. Combined they have been the driving force for innovation in our sector, and they still are. Complexity, sometimes driven by technology, and sometimes by the very regulation that seeks to manage it, is a fundamental feature and challenge. Our products seek to manage complexity, but they are complex as a result. The result is information asymmetry. In any sector where the asymmetry is large, there is great difficulty in ensuring continuously good customer outcomes.

The market-place likes to work on the principle of willing buyer deals with willing seller, and let the market determine what is good. But where the consumer has a lot less information than the provider oversight is required - or gradually, sometimes unwittingly, compromises and choices can be made that are not always in the best interests of the client. The role consumerism and regulation play in such cases is added oversight. In a wider sense, they are market forces just like the choices of individual consumers, and they arise because of the concerns of consumers. The interplay of these forces over the years has brought progress, challenges have been responded to by law and regulation, and changes in the market.

The challenge, and the reason why there must be a critical report from the regulators, is a natural consequence of the forces at work in our industry. It is simply time this happened. That is not to say that every challenge will be correct in every particular, but the broad requirement for such challenges is natural.

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