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Christchurch mosque shootings treatment tops $6 million

The Canterbury District Health Board (CDHB) has reported that up to the end of June they have topped $6 million in costs relating to the mosque shootings that took place in March. The Ministry of Health has approved additional funding of $3 million for the CDHB. CDHB chief executive David Meates added: "This has been derived from our internal costing systems, and covers the direct costs that have been incurred by Canterbury DHB in the initial response post-attack through to the end of June." Click here to read more. 



Recent FMA comments underline the economic cost of implementing the new regime

John Botica and Liam Mason of the FMA presented on the licensing of Financial Service Providers and the conduct review of banks and insurers at Chapman Tripp on 25 July 2019. Three key areas warrant comment.

Licensing of FAPS

The presentation highlighted the announcement on the same day of the date when transitional licensing will open to applications, being 4 November 2019, with applications able to be submitted to a yet to be finalised date in June 2020.The release of a tool to assist with business decisions and a transitional licensing guide was also highlighted. Decisions on transitional licensing were stated as expected to generally be available within 5 days of completed application.

During the commentary, significant emphasis was placed on the decisions that will need to be made by businesses and advisers as to whether to apply for their own transitional and eventually final FAP license, or whether to rely upon someone else’s licence.

There was some comment on the limitations applying to certain choices during the transitional period, depending upon whether or not agreements were in place prior to 8 April 2019. It was stated that there would be flexibility within the system if entities and individuals decide to change their decisions as they move to full licensing. 

However, what seemed to be missing was an appreciation of the difficulty for a business or adviser in determining how best to proceed (obtain their own licence or rely on someone else’s license) in the absence of information on the final licensing conditions or criteria. This was also reflected in the answer to the question asked as to when such information would become available, which indicated that consultation on proposed final licensing conditions would take place “late this year or early next year.”

In this environment, there is clearly a high risk that entities and individuals will make decisions that are then found to be inappropriate and either the costs incurred will have been wasted, or additional costs will then be incurred that might otherwise have been avoided. As it appears that all of the information that the FMA needs to finalise final standard licensing conditions must now be available, it is disappointing that the FMA does not recognise the risks and costs for both financial services providers and advisers as they try to make decisions with incomplete information. That has to have an effect on advice provision. The costs are always borne by consumers in some way, too. Quickly delivering licence standards would avoid many of those costs and provide adequate time for businesses to complete the resulting changes to business structures, policies and processes that will be necessary in many cases.

Conduct Review – Responsibility of product providers for third parties

Recognising that the purchase of a product creates a direct relationship between a product provider and the end consumer, even when completed via a third party, the presentation emphasised the need for each product provider to take on greater responsibility and to accept greater accountability for the conduct and actions of external or third parties selling or advising upon that provider’s products.

In response to questioning, the FMA representative acknowledged the difficulty that will then arise in getting an appropriate balance between maintaining consumer access to advice across a range of market products or services and what will likely be a natural desire of each product provider to limit liability by trying to restrict third parties to only selling or advising on the provider’s own products.

The presenters also suggested that product providers, in another attempt to limit liability, may move towards only being prepared to engage with or allow sales of or advice upon their respective products to be given by those third parties that are licensed Financial Advice Providers.

The risks are clear that none of this bodes well for the maintenance of consumer access to advice across a broad range of market products. In order for this balance to be struck appropriately there must be good delineation between what is meant by 'oversight' and what is left firmly in the realm of the Financial Advice Provider. If there is much overlap in responsibility there will be a corresponding duplication of cost. There could also be an increase in the incentives for product providers to deal with fewer, more aligned or even tied, FAPs - due to the risks involved. 

Conduct Review – Internal and external incentives

The presenters noted the decision by the banks to cease to offer internal incentives to employees linked, for example, to product sales volumes, and stated that the response from insurers is still being assessed or is awaited.

Interestingly, the FMA presenter stated that the decision by the banks to withdraw all such incentives was not a surprise, as the FMA had already determined that there were no suitable controls that could be put in place to reduce or remove the potential harm to consumers that the internal incentives introduced.

No response was forthcoming when it was suggested that perhaps the presenters might therefore also wish to comment as to whether they also held the view that there are no suitable controls able to be put in place in relation to incentives provided to external third parties.

Watch this space but measure the risk that the regulator already thinks that all incentives, whether internal or external, cannot be adequately managed to reduce or remove consumer harm. The doubt about that means that it is hard for financial service providers to plan remuneration strategy effectively while there is uncertainty on this point.

Rob Dowler and Russell Hutchinson

The Commerce Commission review of motor vehicle insurance may help clarify acceptable claims ratios

In announcing their eight focus areas the Commerce Commission included at number three "Motor vehicle financing and related add-ons". Later in their announcement they confirmed: 

"In the areas of environmental claims, online retail and motor vehicle insurance, we will look to understand the issues, identify current and potential harm, educate traders, empower consumers and take enforcement action where needed" 

It will be interesting to see the review. A significant number of the concerns about 'junk insurance' related to add-ons to basic motor-vehicle insurance, particularly when sold alongside vehicle finance. Although our draft conduct regime looks like it will be a principles-based approach, there has been a focus on what constitutes an acceptable level of claims as a proportion of premium. Additional information on what is happening in the New Zealand market will be valuable for regulators and companies in setting policy. 

Dilemma for insurance companies

To remain current, insurance firms are working to adapt business processes to cater to changing needs including introducing policies that cover single items for a few days, providing disability insurance for makeup artists, and offering cover for people with niche possessions. Furthermore, some insurance companies are set on insuring businesses against environmental liability, terrorism, and damage to reputation. While some insurers are looking at new ways to offer customers services, others are cautious that regulators could punish them for unwittingly taking on bad risks. Click here to read more

The greatest of dilemmas has to be how to become more efficient. The challenges of automation look set to be solved in overseas markets, however, with much larger populations. From there, they will probably be imported here. But will they be brought here by our existing companies or by new ones?

Updated information on adviser business valuation changes

With on going changes to the insurance sector, you may be wondering what the changes mean for your adviser business. OR simply, you could be wondering what the worth of your client base is. Alternatively, you may be faced with inquiries from external stakeholders, whether it’s the bank, an accountant or potential investors who are struggling to understand the value of your business or your renewal income.

If this is the case, this exclusive event designed to educate advisers about valuations is for you. With Kurt Owen, Senior Accountant & Consultant at BASE, we are running a free valuation seminar on 7 August 2019, in Ellerslie.  We will talk about:

  • Exploring the factors that make a valuation necessary
  • The ways an adviser may use a credible valuation
  • The relevance of valuations in relation to current issues
  • The effect of recent agency and commission changes on valuations
  • The marketplace for adviser businesses - and some of the experience of advisers in buying and selling

Click here to register for our Auckland seminar

Professional IQ: the first glimpse of a problem with the claim

Professional IQ are hosting a workshop titled 'Prima facie claim: the first glimpse of a problem with the claim' on the 8th of August. Details below:

Clients are often surprised when the insurer asks them to prove or quantify their loss. Using case studies of complaints to the IFSO Scheme, this webinar will look at:

  • What is the prima facie claim 
  • What insurers expect clients to prove
  • What clients expectations are
  • What the common issues are
  • How to avoid common issues

Click here to register.

Amendment to KiwiSaver Act

The efforts of Tim Fairhall, a man with Down syndrome, has ensured that those living a life-shortening congenital condition can access their KiwiSaver funds before the set age of 65. This change comes after Tim, and his mother requested that a Parliamentary select committee set special conditions for individuals living with life-shortening conditions. To have early access, people will need to follow set procedures, including providing medical certificates and other evidence.

nib marketing programmes

Announcing special offers for consumers and marketing support for advisers nib writes:

Dedicated marketing campaigns – More healthy client conversations

We’ll help you start new conversations with prospective and current clients with campaigns that springboard off topics of concern and interest. Like our offer for new members to WIN one of thirty $500 MTA Gift Cards!

I was told to stop talking about insurance...

In response to my recent call for help to identify links between insurance and retirement policy, I was told in the nicest possible way that... there aren't any, based on the boundaries drawn by the terms of reference. Although in some respects, there have already been some modest links identified, such as providing for early access in the case of life shortening conditions, which could mean that early access to funds is needed, but not necessarily available under current terms. More certainty around those rules would help with insurance planning. 

On another note, it sparked an interesting debate that included: 

  • whether insurance in superannuation had been helpful, in Australia
  • whether a state mandated minimum insurance package would be helpful
  • what might form part of such a package

For the record, my answers are: 'probably not' to the first two, and therefore 'not applicable' to the last.