Legal and regulatory review for the life and health insurance sector

19 Apr 2021 – Dentons Kensington Swan advised that the international Financial Action Task Force (FATF) had consulted private sector stakeholders on an update to FATF guidance on the risk-based approach to virtual assets and virtual asset service providers, with consultation having opened on 19 March 2021 and with submissions closing on 20 April 2021.

https://www.fatf-gafi.org/publications/fatfrecommendations/documents/public-consultation-guidance-vasp.html

20 Apr 2021 – APRA and ASIC released a Life Insurance Claims and Disputes Statistics publication, covering a rolling 12-month period from 1 January 2020 to 31 December 2020. https://www.apra.gov.au/news-and-publications/apra-and-asic-publish-latest-data-on-life-insurance-claims-and-disputes-3

21 Apr 2021 – FMA media release stating that it was warning the funds management industry to avoid advertising large investment returns for the 12-month period to March 31, 2021, as this could mislead investors. https://www.fma.govt.nz/news-and-resources/media-releases/advertising-investment-returns-could-mislead-investors/

21 Apr 2021 – MBIE opened consultation on outstanding aspects of the upcoming regime governing conduct in the financial sector, including consulting on regulations covering matters such as requirements for claims handling and complaints processes, prohibitions of certain types of sales incentives, and the treatment of intermediaries, with submissions closing on 4 June 2021. https://www.mbie.govt.nz/about/news/consultation-opens-on-additional-measures-in-new-financial-conduct-regime/

21 Apr 2021 – Parliamentary website updated for the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill, showing submission closing date as 28 May 2021 and report date as 16 Aug 2021. https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_109905/financial-sector-climate-related-disclosures-and-other

21 Apr 2021 – IRD advised that it has identified several errors in the recent special report on the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021, and is currently in the process of updating it. An updated version will be published by early next week. https://taxpolicy.ird.govt.nz/news/2021/2021-04-21-updates-required-special-report


Legal and regulatory update for the life and health insurance sector

16 Mar 2021 – Commerce Amendment Bill underwent First Reading and referred to the Economic Development, Science and innovation Select Committee, with report back due by 16 Sept 2021. The Financial Markets Infrastructure Bill completed Second Reading. Relevant weblinks are https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_108304/commerce-amendment-bill and https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_93550/financial-market-infrastructures-bill

17 Mar 2021 – Incorporated Societies Bill introduced into Parliament. The purpose of the bill is to put in place a modern framework of basic legal, governance, and accountability obligations for incorporated societies and those who run them. https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_109429/incorporated-societies-bill

16 Mar 2021 - The Australian Prudential Regulation Authority (APRA) has released its private health insurance risk equalisation statistics publication for the 2019/20 financial year. https://www.apra.gov.au/private-health-insurance-risk-equalisation-statistics


Legal and regulatory review for the life and health insurance sector

16 Mar 2021 - The Financial Markets Authority (FMA) Board announced that Chief Executive Rob Everett had resigned and would leave the organisation towards the end of the year. https://www.fma.govt.nz/news-and-resources/media-releases/fma-board-announces-chief-executive-will-leave-at-end-of-2021/

15 Mar 2021 - The Australian Prudential Regulation Authority (APRA) released a response letter for insurers on proposals to collect cyber insurance and management liability data in the National Claims and Policies Database. https://www.apra.gov.au/news-and-publications/apra-releases-draft-reporting-standards-for-data-collection-national-claims

11 Mar 2021 - The Anti-Money Laundering and Countering Financing of Terrorism (Class Exemptions) Amendment Notice 2021 (‘Amendment Notice’) was released on 11 March 2021 and is now in force. It amends Part 5 (Reporting Entities whose customers are licensed managing intermediaries) and Part 8 (Financial advisers arranging for relevant services to be provided for retirement schemes) of the Schedule to the Anti-Money Laundering and Countering Financing of Terrorism (Class Exemptions) Notice 2018 (‘Principal Notice’), with the changes largely arising under the new financial advice regime.


Legal and regulatory review for the life and health insurance sector

4 Mar 2021 - Overseas Investment Amendment Bill (No 3), introduced on 14 May 2020, reported back to Parliament. https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_97807/overseas-investment-amendment-bill-no-3

4 Mar 2021 – APRA released separately the statistics for December 2020 for life insurance and general insurance. Weblinks are https://www.apra.gov.au/news-and-publications/apra-releases-life-insurance-statistics-for-december-2020 and https://www.apra.gov.au/news-and-publications/apra-releases-general-insurance-statistics-for-december-2020

4 Mar 2021 – Financial Advisers Disciplinary Committee issued its penalty determination on the case decision released in Jan 2021 regarding Code Standard breaches. The FADC imposed the penalty that the Respondent is censured for the Code breaches together with permanent suppression of identity. https://fadc.govt.nz/decisions/

4 Mar 2021 – Commission for Financial Capability announced that it had launched achievement standard resources through its Sorted in Schools programme. The resources are designed to be taught by teachers as part of day to day classes in Statistics and Economics for students studying toward NCEA Levels 1 and 2. https://cffc.govt.nz/news-and-media/news/money-lessons-offer-ncea-excellence-grades/

5 Mar 2021 – FMA issued a public warning to the adviser for KiwiSaver advice given generally to switch funds in the wake of COVID-19 and market volatility in March 2020. https://www.fma.govt.nz/news-and-resources/media-releases/fma-warns-financial-adviser-kiwisaver-covid19/

5 Mar 2021 – IRD advised that the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Bill, introduced on 4 June 2020, was reported back to Parliament on 4 March 2021. https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_98047/taxation-annual-rates-for-2020-21-feasibility-expenditure


What makes an appropriate incentive?

There is a conversation going on right now about what are appropriate metrics and targets for incentives. Companies exist to make money. That fact is often advanced as a reason for assuming that they will place their benefit above customers, but failing companies the world over are often exemplars of companies that have placed financial gain above the need to serve customers well. In practice, over any significant amount of time, those two goals are inseparable. Sooner or later the truth comes out. 

Short-term incentives play a part. People find it hard to always be thinking about the long-run. A certain amount of get up and go is generated by creating a sense of urgency. Time-based incentives can do that. But they risk abandoning the long-run worries about sustainability to the excitement and rewards of the moment, or at least, the period of qualification for a bonus. Time-bound rewards can create oddly powerful incentives. Think of the value of the last piece of business that takes a person across a qualifying line for an incentive or bonus. 

Yet there must be measurement. Without it shareholders will abandon the sector. Their capital and expectations of return create opportunities: they invest in new technology, the basis for efficiency gains, reduced premiums, and improved service to customers. They invest in research and development, allowing new products to be developed. Go back in time and there was no cover for heart attacks, or any other trauma condition, or income protection. There were no e-apps. Cool online tools did not exist. They did not spring fully-formed from the ether. Plenty of innovation is required to make our markets and services better. More is needed, not less, in order to close the under-insurance gap and make New Zealand's insurance industry as efficient as that of, say, the UK's. 

Some ideas have been generated about how to manage these conflicting forces. In Australia APRA has sought to advance the concept that 50 percent of the measurement criteria for executive bonuses must not be financial. That has recently come under attack. Several prominent chair people (present or past) of companies in Australia have questioned the initiative, even calling it a misinterpretation of the intention of the Hayne Commission report, as Patrick Durkin reports in this article at the Australian Financial Review. They are not alone. NAB received an unprecedented 88% protest vote against some of their plans to introduce non-financial metrics. That could be a question of exactly what those metrics are, and also communication, but highlights the risk that change will alienate investors.

Clearly, there is a lot more thinking to be done on this area. 

 

 


APRA on general insurance: call for more expenditure on mitigation and resilience

The AFR reports that APRA is so concerned about the crisis in insurance coverage in northern parts of Australia that it wants a new approach to the market: 

"All levels of government must act to save swathes of northern Australia from becoming uninsurable as a result of a climate change-related increase in natural disasters, the prudential regulator has warned. The Australian Prudential Regulation Authority said action should include a major shift of emphasis from disaster recovery to disaster resiliance and mitigation, pointing out the vast majority of disaster funding goes to "clean-up and recovery", with only 3 per cent on prevention and mitigation."

The piece by James Fernyhough is well worth a read, and not just for general insurers. It is also indicative of a wider interest by regulators in spotting medium to longer term issues and creating impetus for solutions where competitive pressure makes it hard for individual participants to act. That sounds a lot like some of the problems the New Zealand life insurance industry is grappling with. 


What does commission buy you?

The argument over commission, and the effect of conflict of interest created by commission, is the insurance industry's equivalent of the great debate over whether advisers add value.

Supporters of the validity of the commission model received a boost on Friday from an unlikely corner. APRA's research, backing up a survey by ASIC not long ago, shows a greater percentage of admitted claims if the client received advice compared to a non-adviser individual cover see this link and table below:

There is some nuance to consider. 

Advisers tend to sell a broader cover mix. When clients buy income protection cover direct, the contracts tend to be issued based on short-form underwriting and have tougher terms. There are some stand-out numbers. The first is TPD where advised clients enjoy higher accepted claims rates over non-advised by a large margin. The second is 'accident' which is very rarely sold by advisers, but there appears to be a startling gap there, showing that non-advised clients do better in that case. 

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Australia: APRA and ASIC release new life claims data

The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) (the agencies) have published data on life insurance claims and claims related disputes for the period 1 January 2017 to 30 June 2017. Click here to read more.  Below are some of their findings - well worth a detailed review.


Table 2

Table 2

Table 2