From 1 February, OnePath becomes Cigna

Cigna formally absorbs OnePath from 1 February. Quoting from an email sent to advisers recently they announced: 

"We’re pleased to let you know that we have received approval from the Reserve Bank of New Zealand, and on 31 January 2020 the OnePath business will be transferred to Cigna. This means the two businesses will begin operating as one – Cigna"

Congratulations to Cigna on the successful completion of the merger. Adviser familiar with other mergers will be able to appreciate how quickly, and in many respects smoothly, this has gone. Also announced under the same email are changes to the agency agreements. These, like AIA's recent changes, introduce new obligations for both advisers and Cigna. These relate to the expected requirements under the Conduct of Financial Institutions Bill. Although these requirements will probably undergo some change, the transfer of all OnePath business to Cigna means that a new agreement was required.


UPDATED - CoFI introduced to Parliament

The daily progress report for parliament yesterday shows the introduction into Parliament today of the Financial Markets (Conduct of Institutions) Amendment Bill.

https://www.parliament.nz/en/pb/daily-progress-in-the-house/daily-progress-for-wednesday-11-december-2019/

The draft bill can be found on the legislation.govt.nz site - or you can just download your copy at this link. Download Financial Markets Conduct of Institutions Amendment Bill

David Chaplin has his brief take on it all at this link: https://investmentnews.co.nz/investment-news/fair-cop-government-sneaks-in-conduct-bill-before-year-end/ 


New exclusions: cancellation due to sanctions

A new type of exclusion has appeared. The average policyholder has nothing to worry about. Perhaps it would be more accurate to say - only the most extraordinary policyholders have any concerns, and if they did, we should probably have concerns about them.  That's because the new exclusion is to remind people that if they - or a related party - are subject to sanctions from a range of western economies or the United Nations, then the policy may be cancelled. Here is the section from AIA's policy document: 

Cancellation due to Sanctions
We shall not provide cover for any risk and/or activity and shall not be liable to pay any claim or pay any benefit hereunder to the extent that the provision of such cover, payment of such claim or provision of such benefit would be in respect of a person who is the subject of any sanction, prohibition or restriction under United Nations resolutions or trade or economic sanctions, laws or regulations of New Zealand, the European Union, United Kingdom or United States of America, or any of its states and/or any other applicable economic or trade sanction laws or regulations.
This provision applies without limitation not only to the policy owner or holder, but to the life assured and any assignee, other third party, related party or beneficiary of the policy.
Should we determine that the above is applicable, we may at our sole discretion terminate the policy with immediate effect.

This should probably be seen in the context of the conduct conversation. If you have been following the concerns about Westpac Bank in Australia raised by the AUSTRAC, the regulator responsible for enforcement of the equivalent of our AML-CFT laws you will see that context is no longer purely local. Regulators expect companies to have oversight mechanisms in place, and tools to manage actions that the regulator may require. That's what AIA's new cancellation mechanism is about. Hopefully it may never get used, but a prudent approach is to have the tools available just in case. 


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. 


The challenges of agreements as you look towards CoFI

Even a cursory glance at an agency agreement shows a number of problems against expected oversight requirements under proposed new Conduct of Financial Institutions law. In fact, most agency agreements, with a few notable exceptions, lack the tools to be really effective today, let alone in the new environment. Common problems include: 

  • Insufficient detail on what exactly is expected of the agency-holder
  • Vague and indistinct ideas about the role of 'advice' in the relationship, usually agency holders are required to be advisers, but they are not required to give advice, and most other performance obligations don't appear to relate to that service
  • Speaking of service: it is sometime a vague requirement, but it is rarely defined, and frankly cannot be defined really well without cutting across the variation in business models that is a vital part of the adviser ecosystem
  • A mixture of tightly defined things - such as a requirement to meet certain legal standards - which often do not need to be in the contract with a complete absence of some other rules, such as brand use and privacy provisions which are common agency relationship issues suited to being dealt with in the agency contract
  • Inadequate dispute mechanisms coupled with the sanction for any breach usually being termination of the agreement. That sanction is rarely used, so the agreement rarely mirrors how the agency relationship actually works

In the new environment there is more complexity, not less. The starting point should be clarity on who the parties are likely to be and what you expect of each other. Defining that in business relationship terms first may give you a smoother path to producing the new document. Chatswood has an agency terms comparison checklist for those of you that might want to have a discussion about this. 


Advisers minimise chances of poor claim outcomes

Tower CEO Richard Harding detailed that research showed confidence in the industry is at an all-time low. Harding revealed that although general insurers often claim 99.9 per cent of claims are paid, instead approximately one in five claims were withdrawn by policyholders. Although there are many reasons a policyholder could withdraw a claim, including pressure from the insurer, fear, dishonesty and non-disclosure, having an adviser reduces chances of withdrawals. Clients with advisers are better informed and make fewer pointless claims. In effect, his comments were a big endorsement of having an adviser involved. By implication, however, they raise questions about direct insurance. Click here to read more


RBNZ: Insurance sector must evolve in line with increased public expectations and changing risks

Adrian Orr, Governor from RBNZ delivered a speech at the Insurance Council of New Zealand Conference today about building confidence and reducing risks in the insurance sector. You can read his full speech here.

Here are some key points that I really enjoyed:

  • There are significant information-asymmetries between an insurance provider and their customer, and the risks of providing poor or outdated information run in both directions. ‘Who is good for what, and when?’.
  • ...often there is a long period of time after a customer-relationship has been established. In very difficult circumstances, a customer may find that they do not have the coverage they believed would be available to them. And, on the other side of the ledger, insurers rely on accurate information from customers about their own circumstances.
  • Orderly and well-articulated changes in insurance and pricing strategies are needed, so that all participants in the financial sector – and wider economy - can adapt their behaviour without creating unintended outcomes.
  • How a firm monitors and addresses conduct and culture issues will be a part of our ongoing ‘business as usual’ supervision with all insurers. We will also monitor insurers to make sure their planned actions are implemented effectively.
  • The public is demanding that both insurers and regulators play a part in providing greater confidence in the health and conduct of the sector. The Reserve Bank’s insurance agenda for the coming year (or years) is thus very full.

The section on three disciplines, which is too big to quote, is also well worth a look.

I liked the comment about changes in insurance and pricing strategies. I think that this is probably about the more visible marketplace - general insurance - and the role it has in affecting decisions that people make about where they live and the buildings in which they live, and also what buildings get built and where. But it could equally well apply to the marketplace for income protection too, which is in a product design and pricing crisis that has some similar features to insuring buildings in earthquake and flood prone areas. Both life and property insurers have efficiency challenges. The point about information asymmetries cannot be made strongly enough and needs to be remembered in the insurance contract law review process. It is a comfort to insurers (and should be to consumers as well, although they don't tend to be) that officials are signalling that they understand these fundamental concepts. 

 


Tony Vidler: doubts that insurance churn is such a big issue

Here is an article from Tony Vidler discussing the churn of life and health insurance in NZ, and why he feels it is not as bad as everyone makes it out to be. There are some well-made points in here - for example, there are big trends towards more choice and greater consumer propensity to switch in all sorts of products (cars, houses, even once very stable banking relationships are more open to change). 


Reflections on the interactions between likely conduct law and the Financial Services Legislation Amendment Act

Following a recent speech by Kris Faafoi, Minister of Commerce and Consumer Affairs, my compliance consultant and I exchanged views on the interactions between the proposed conduct law and the other parts of the financial services legal and regulatory regime.

It is hard to envisage circumstances where the conduct requirements under the regime proposed for banks, insurers and NBDT entities will not be introduced into the new Licensed FAP regime. It is clear that FAPs will need to meet at least broadly equivalent conduct requirements. A product provider bound by a conduct law would have to require a FAP, perhaps an agent of the product provider, to meet standards if the standards were not going to be extended to the FAP.

Then consider this situation: There is the issue of those FAPs that provide advice on the products of licensed conduct entities where there is no commercial relationship between the FAP and the conduct licensed product provider. Take ABC Advice Ltd charging client fees direct and receiving no remuneration from XYZ Insurer Ltd with ABC Advice Ltd providing advice on XYZ Insurer Ltd products, with or without the knowledge of XYZ Insurer Ltd that ABC Advice Ltd is doing so. XYZ Insurer Ltd will still have conduct obligations to a consumer who is also a client of XYZ Insurer Ltd and ABC Advice Ltd, even in the absence of any contractual relationship between XYZ Insurer Ltd and ABC Advice Ltd. 

Separately to that issue, as the conduct licence is separate from the other licences required by banks, insurers and NBDTs, what does it mean if a conduct licence is withdrawn? It would seem likely that the loss of a conduct licence will be sufficient to put the total entity out of business. That raises so many questions about sanctions short of withdrawal of the licence, and also the need for a process to manage the extreme circumstance of licence removal and how to protect the interests of clients during that period of time.

 


Fake medical studies, conflicts of interest, and rationalisations

According to Dr Andrew Klein, a UK anaesthetist and editor-in-chief of the journal Anaesthesia, fake medical data is on the rise. He believes that there is about one fake medical study for every 40 papers submitted for publication. There is a data-pattern analysis technique they use to detect this and although they find the odd mistake they believe "nine times out of 10 people have clearly made their data up or changed their data. A lot of articles that we might have published before are now not going into the journal.” Click here to read more. 

I am going to file this under 'we are all subject to conflicts' and point out that even when the conflict is not about money - it may be solely about prestige, or pride, or just winning an argument - it can influence behaviour. Everyone is subject to these kinds of pressures - and what's interesting is that the people submitting articles to Klein's journal probably did not think they were doing anything wrong, or perhaps, not very wrong. Sometimes you hear people talk about what everyone 'everyone knows'. Then they get a set of data that doesn't fit the pattern, and they could think 'that can't be right' and instead of holding on to the question, they moved a data point or two...

Which is a caution to us all, to look at the data, not look for how the data supports the story we are already telling ourselves.