Australia: NAB to pay $49.5m in compensation related to credit insurance sales

Elouise Fowler writes in the AFR that NAB will have to pay compensation of $49.5 million to clients sold unsuitable credit insurance contracts.Link

Credit insurance as a brand has been devastated by conduct issues in Australia and New Zealand. Here new sales are virtually nil and the in-force book is shrinking fast. 

Are sales always inconsistent with good customer outcomes?

Of course, my personal answer is 'no'. In fact, I quite like buying things. When I meet an excellent sales-person, who helps me through the process, I am usually very happy. Equally, most people don't like the idea of very pushy salespeople, or those that use very obvious 'sales' approaches. None of us want a world in which it is okay to use power imbalance, coercion, lies and other manipulative or unfair techniques to get people to buy things. But those last things are rare, and almost unheard of in large, conservative, organisations that must maintain a good reputation over decades. They actively try to find and get rid of dangerous people and practices. I think there has been some news about that recently. 

Reading about a union organiser, complaining that banks are relying on branch and call centre employees to follow a script to sell products like KiwiSaver, insurance, mortgage top-ups, credit cards, overdrafts and personal loans, I got the feeling that the only acceptable outcome was zero sales. Click here to read more in Rob Stock's article on

Of course scripts and empathy statements are cheesy if used badly, and awful if used inappropriately. But don't kill sales because somebody needs a sticker on their monitor to remember to offer additional services. Given that most New Zealanders could do with saving a bit more, and having a bit more financial protection in case of a loss of income, I am happy to see more effective selling on those things. Even products that are not normally associated with good financial outcomes can be a force for good. A credit card or overdraft is cheaper and better than a payday lender - and I would rather it was sold responsibly by a well-regulated organisation than not. Even this misses a wider benefit to society. When there is a dynamic and competitive market-place for credit products the consumer wins. So, less sales activity means less competition and poorer products for all of us.


It’s not just banks; insurers and advice businesses need to read the latest FMA report on banking conduct

No media report I have yet seen appears to have identified that the issues and FMA requirements outlined in the report will be relevant to all financial services providers, not just the banks. That includes companies contemplating Financial Advice Provider licences, and those intending to distribute insurance on a no-advice basis too.

If you are in financial services, read the banking report, and measure your financial services business against the findings and clear requirements that the FMA and RBNZ are headlining. You might also assume that these requirements will form part of the licensing requirements for financial advice providers.

Take particular note of the following:

  • Sales incentives – clear message that either these have to be removed or bank managers are going to be required to explain how they will strengthen their control systems to sufficiently address the risks of poor conduct that arise with such incentives.
  • Contemplate the implications for other sales incentives and commission payments throughout the wider financial services industry. Note also a further report focused solely on bank sales incentives is going to be released on 15 November. I am expecting it will be similarly tough
  • Compliance assurance – if you have not already done so, measure your business against the FMA 2017 Conduct Guide
  • Need to be measuring and reporting on “lead” as well as “lag” indicators to identify and mitigate emerging risks early, rather than simply identifying things that have already gone wrong.

Quotes – emphasis added by me:

  • “Banks cannot rely on the absence of identified issues as an indicator of good conduct.”
  • “Boards must be proactive in considering what information they require to obtain assurance of good customer outcomes.”
  • “The lack of conduct requirements in the delivery of banking products (particularly those distributed without financial advice) has hampered the FMA’s regulatory oversight and the development of consistently strong governance and management of conduct risk across the industry.”
  • “More work is required to ensure banks are comfortable with the quality of conversations and advice that occur via intermediary channels, and that the incentives offered to intermediaries are aligned with good customer outcomes.”

Trauma Product: BNZ LifeCare changes, but severe heart attack definition remains limited

BNZ made a number of changes to their LifeCare products on the 1st of September. Critical conditions such as benign brain tumour, major head trauma and out of hospital cardiac arrest have been added to their Critical Condition benefit. However, the severe heart attack definition remains tough by industry standards with a requirement to meet at least three of four defining factors or alternatively have a substantially ventricular ejection fraction. A couple of exclusions have also been removed from some benefits including an exclusion for war and one for HIV. Click here to read more.

Australia: Banks and their Insurance Businesses


Updated post: 

Although I have a convention of tagging news from Australia in the headline, this post has a great deal of relevance to our market, as it accounts for the fact that insurers representing nearly half of the market are for sale. The AFR has a detailed piece which I will make a few quotes from below, but you can find at this link, on why they think that banks owning insurance companies has become a headache - hence the rush to sell them. First, the AFR says that the news CommInsure was for sale was greeted with indifference by the market because of the 'state of the industry, which has been hammered by rising lapse rates and more lately, soaring claims'.

Obviously, the situation in Australia has been quite different for a number of insurers, to the experience of the same brands in New Zealand. Sovereign is not CommInsure, Asteron Life in New Zealand contributes well to Suncorp's group profit. Overall lapse rates and claims performance differ between the countries, in part, for structural reasons. We don't have a lot of TPD in superannuation, which appears to have caused some particular problems in Australia. 

The AFR went on to list the companies sold: NAB sold to Nippon Life, Macquarie to Zurich. Then to list those for sale - they name ANZ, the life businesses of Suncorp, and quote AMP as saying it is "open-minded" - although I always felt that's the proper attitude of any business, pretty much all the time. But because these businesses are often quite closely linked behind the scenes (systems, staff, brands, reinsurance, and more). Therefore, if the Australian business is sold, it is common that the New Zealand one goes with it. Not all businesses will be sold, of course. In addition, when a business is under review sometimes a bias towards a sale can uncover an opportunity to buy. But some transactions seem likely in the coming year. If the number was two, or three, it would represent an incredible period of change. 

AFR then contemplates the question - how did it come to this? You can check out their full article for details, but two issues they list are worth contrasting with the situation in New Zealand.

The first is the ASIC report that "found 37 per cent of advice on life insurance was in breach of the law and almost half failed when high upfront commissions were charged". I read that report and it has some problems, small sample sizes, and arguable definitions of what constitutes 'failing' advice. But here in New Zealand we have an advice law which barely even makes the comparison possible. Since a written record of advice is not explicitly required under our current law it may not be possible to conduct the same kind of investigation here. But the FMA has gamely tried, and by analysing five years of data they have found a strong statistical link between incentive travel offered by insurers and higher new business and lapse rates. The insurer's might say, 'well that's what we were hoping for when we offered the incentive' but that brings us back to the quality of advice.

The second is the issue of poor systems - some so poor, AFR says, that they cannot provide good information, or hamper the ability of the insurer to report, or provide effective claims service. That sounds familiar too - and some of the systems will be common across the two markets. Replacing those systems requires new capital. So even after a transaction, that will not be the end to the change in the market. It will be the beginning. 


ANZ Wealth Sale: Process and Announcement

There is a good article on Bloomberg from a couple of weeks ago, about the process ANZ is going through to offer the ANZ Wealth business for sale. The article lists AIA, Metlife, and Zurich as bidders in a short-list reduced from about five. It will be interesting to see who wins and whether the New Zealand businesses in the wealth category go with them. AIA and Zurich are both present in this market, of the two, AIA already has substantial life operations. Acquiring NZ life operations would create a business for Zurich, and add substantial scale to AIA. Of course, the New Zealand business could be retained by ANZ. We look forward to the announcement with interest. 

Advisers and ASICs Claims Review

Advisers in Australia seemed to line up, initially, with insurers in expressing some discomfort at the release of data contained in ASIC's recent report on claims payment in Australia. In New Zealand, unaffected by ASIC's jurisdiction, people that follow such things have tended to focus on the positive endorsement of advisers and advice contained in the review: that claims are more likely to be paid when advice was provided during the sales process, a pretty powerful endorsement.

Now I have seen the first article from Australia which picks up on this point, and I am delighted to do so. It is often easy to think of the regulators job as an adversarial one. They can become adversarial, certainly, but don't necessarily want to function that way. In fact, the more we all focus on a kind of 'market development' paradigm, the better the whole outcome will probably be. This report actually contains a lot of information useful if you care about the development of the market as a whole. 

ASIC Claims Review: Quantifying the Value of Advice in Extra Claims Paid

Advice has a number of contributors to claim outcomes. Courtesy of ASIC, we now have data to quantify exactly how those help consumers at claim time compared to non-advised insurance. The data is in section 184 of the ASIC report - page 53. This is how it breaks down, by claim outcome:

Non-advised decline rate is 12%, compared to just 7% for advised channel claims. That is a huge variation: you are almost 70% more likely to have a claim declined in a non-advised channel product. Why is that? The chances are, its the product. Advisers do not sell the types of products that are commonly sold in non-advised channels. The differences will be mainly in pre-existing conditions exclusions and the absence of underwriting in many of these products. This is a valuable indication of the size of penalty that Quality Product Research Limited should consider when rating non-underwritten products. This may also be influenced by the adviser reviewing the potential claim, and pointing out when it really shouldn't be made.

Non-advised claim withdrawal rate is 11%, compared to 12% for advised channel claims. That gap is again bigger than it looks. The claims withdrawal rate could mean quite different things. An adviser may recommend putting in a marginal claim and withdraw it when it becomes obvious that it will not succeed. Or a client might make a claim and be talked out of it by an adviser - especially if the nature of the claim meant that it was, in fact, misrepresentation or fraud. We don't know, and it might be good to talk about this.

Non-advised partial claim acceptance is just 1%, compared to 3% for advised channel claims. This gap is again bigger than it looks. It will reflect a mix of things: the first is again product design. Advisers are more likely to choose complicated but comprehensive products which include partial payments. Non-advised channels, in their quest for simplicity, tend not to have these features. Another possibility is that advisers can advocate for payments for their clients under sections of their complex wordings that clients themselves might overlook even if they buy a complex product from a non-advised channel. Lastly advisers may be twisting insurance company arms: a client on their own is just one client, an adviser represents a large number of current and future clients too, which may prompt a little more flexibility in marginal cases. 

Both channels have the same level of 'undetermined or unspecified' outcomes - of 3%

That leaves the 'Accepted in Full' category of claims at 74% for non-advised and 76% for advised channels.

Of course, these are only averages, for some companies the decline rates are higher, and some much higher. There also appears to be an interesting effect on the level of disputes, but we will write on that later. 

Lastly it should be pointed out that the claim acceptance rate on insurance you don't buy is always 0%. I am a great advocate for insurance and feel that non-advised cover fills an important gap for many people. 74% full claim success rate is a very, very, great deal better bet than not buying cover at all.