Consumer issues: access to advice harmed by increased compliance costs for advisers

Following our recent blog on Australia's financial adviser numbers readers interested in the subject you might want to have a look at the report and the article posted on investmentnews.co.nz: at http://investmentnews.co.nz/investment-news/parliament-calls-for-advice-price-check-more-regulation/ I considered commentary on the link, but I think you cannot do better than simply reading the article. I feel for advisers in Australia. Although the quality of advice review has the right terms of reference, it is incredibly difficult to roll-back regulation with the scope that exists in Australia - there are too many people committed to the choices made over the last few years I worry that little substantial change will be made and it is ordinary consumers that will be the poorer for it. For those that want to dive deeper, here is the link to the report of the FEC: Briefing from the Reserve Bank of New Zealand and the Financial Markets Authority on the outcomes of the Australian Royal Commission into banking - New Zealand Parliament (www.parliament.nz)


Outrage over funeral cover scheme closure, and more daily news

It was announced that New Zealand Credit Union (NZCU) was set to close down its Credicare scheme. This was going to leave over 2,00 people without funeral cover. Members were set to be credited $50. After outrage from members, NZCU announced that the Credicare scheme has been extended until January 2022 when NZCU will decide the future of Credicare. 

“More than 2,000 people are likely to be left with hefty funeral bills as the New Zealand Credit Union (NZCU) looks to close down its Credicare scheme, which provides funeral insurance plans.

Around 2,650 people are part of the scheme, most of them South Islanders. Some of the clients had been paying into the scheme for many years, expecting their families to receive around $10,000 when they died, according to a report by TVNZ’s Fair Go.

In June, NZCU announced that it would shut down Credicare, to the shock and dismay of customers, especially those who had invested significant amounts of money.

As part of the closure, NZCU offered members a credit of $50 in their accounts. However, some customers said they had paid thousands of dollars since the scheme began in early 1990s. The closure will also make it very difficult or costly for elderly customers to obtain further funeral insurance.

Meronea Dawson, a member that had paid into Credicare for more than 20 years, could not help but feel betrayed.

“I feel like a friend of mine shat on me,” Dawson told Fair Go.

Following the backlash, NZCU said it will extend the Credicare scheme until January 2022, when it will make known its decision about the scheme’s future.

“We acknowledge that we could have approached the proposed closure of Credicare in a different way and we are sorry that our recent communication has caused concern and distress for some Credicare members,” said NZCU chief executive Gavin Earle. “We have listened to the feedback and are committed to working together with Credicare members to determine its future.” Click here to read more

Insurers and advisers that regularly work with customers will recognise the misconception represented by the word 'invested': these people believe that they are saving up for a claim. That belief means that they do not understand the product they own - which is a large part of the reason it is not working the way they thought it would. We know that insurance is a low-involvement category. Very often, even if a client has the cover properly explained to them, they forget - because it simply isn't important information for them. Insurance is boring for most consumers, and the new and confusing thing they just been told stands no chance against a long-held belief. That is one of the reasons that we cannot expect clients to maintain their own insurance programmes. It must be done for them, either by the insurer, or a good adviser. 

In other news

Fidelity Life: The Fidelity Life team, including Business Managers can be contacted as usual via phone and email 

Partners Life: Partners Life to monitor the COVID-19 lockdown situation closely over the next few days to work through what this might mean for affordability support options for clients, underwriting and new business pipelines

RBNZ: Official Cash Rate on hold at 0.25 percent

 


Legal and regulatory update for the life and health insurance sector

22 July 2021 – FMA released a report on Insurance conduct and culture: Fire and general insurers update. https://www.fma.govt.nz/news-and-resources/reports-and-papers/fire-and-general-insurers-update/

22 July 2021 – The latest FMA update included information on a report released in June titled “Filing of financial statements: review findings and guidance. https://www.fma.govt.nz/assets/Reports/Filing-of-financial-statements-review-findings-and-guidance.pdf

22 July 2021 – The FMA update also included advice that:

  • The FMA will be consulting in the third quarter of 2021 on proposals for exemptions to provide relief for insolvent FMC reporting entities that are in liquidation, receivership or administration from certain financial reporting requirements under the FMC Act to determine whether a class exemption is required.
  • AML/CFT reports for the period 1 July to 2020 to 30 June 2021 are due by 31 August 2021. AML/CFT supervisors have released updated guidance designed to help reporting entities complete their annual AML/CFT report.

https://www.fma.govt.nz/compliance/guidance-library/annual-amlcft-report-user-guide/

  • Updated the AML/CFT content on the FMA website to include information for Financial Advice Providers and Authorised Bodies.

https://www.fma.govt.nz/compliance/amlcft/faqs/#fapaab

  • A reminder of the new AML/CFT regulations that came into effect on 9 July 2021 and the availability of guidance on the new regulations available on the FMA website.

https://www.fma.govt.nz/compliance/guidance-library/amlcft-regulations-update-2021

22 July 2021 – RBNZ announced a consultation on an interim Solvency Standard for insurers, which will determine the minimum amounts of capital that insurers must hold, with submissions closing 1 October 2021. https://www.rbnz.govt.nz/news/2021/07/reserve-bank-consults-on-interim-insurance-solvency-standard

22 July 2021 – APRA released its Private Health Insurance Annual Coverage Survey for 2020. https://www.apra.gov.au/news-and-publications/apra-releases-its-private-health-insurance-annual-coverage-survey-0

22 July 2021 - Retirement Commission released its latest survey into the financial capability of New Zealanders. https://retirement.govt.nz/news/latest-news/latest-financial-capability-study-proves-knowledge-is-power-with-positive-findings-for-maori/

22 July 2021 – In an article titled “England’s NHS data-sharing to third parties”, the Privacy Commission uses this to highlight the privacy issues relating to patient data that may need to be considered with the consolidation of New Zealand’s district health boards into a single agency called Health New Zealand. https://privacy.org.nz/blog/englands-nhs-data-sharing-to-third-parties/

Probably the two most interesting items here are the conduct report on general insurers and the Privacy Commission's interest in medical data sharing. So many of the options for modernising the sector rest on medical data sharing and banking data sharing that these are likely to be areas under continually increasing scrutiny. 


Legal and regulatory update for the life and health insurance sector

13 July 2021 – Parliament’s Finance and Expenditure Committee announced it will be opening an inquiry into the current and future nature, impact, and risks of cryptocurrencies. https://www.facebook.com/FESCNZ/posts/942985546484119

19 July 2021 – FMA released its Annual Corporate Plan 2021-22. https://www.fma.govt.nz/about-us/corporate-publications/annual-corporate-plan/

In the last item there is a relatively brief mention of the insurance sector priorities, which are: 

Our areas of focus in the Banking & Insurance sector are:
Preparation for the CoFI and updated insurance contract law regimes including:
• providing policy input as part of the legislative process
• engaging with industry participants and other stakeholders to build our understanding of the banking and insurance sectors
• developing a licensing approach for CoFI
• developing a monitoring and enforcement approach for when the regimes are in force.

 


Zombie fee focus by regulators and more daily news

Investment News NZ highlights the issue of 'zombie fees' in its recent piece on ASIC's legal action against five AMP entities in Australia. "Zombie fees" are fees which carry on being charged even if no service is being given, sometimes even if the client has died. Of course, if an investment management service is continuing then some level of fee should continue but it is hard to argue advice is being given if the client is dead. In a sector which usually knows the age of its clients and offers products explicitly focused on end-of-life issues we are being challenged to be more active in identifying when a client dies, which is a matter of public record, rather than simply continuing to take the money. 

In a release, the Australian Securities and Investments Commission (ASIC) says the legal action alleges five AMP entities “were involved in charging life insurance premiums and advice fees to more than 2,000 customers despite being notified of their death”.

Last year AMP paid out about A$9 million in a remediation program established to redress fees charged to close to 20,000 dead insurance and superannuation fund clients.

But the latest ASIC action comes in “respect of 2,069 deceased members affected by the retention of premiums, and 27 members affected by the retention of advice fees”.

Does this affect New Zealand? Not directly, in the Investment News NZ column it is clear that NZ entities are not part of the recent news. However, it is clearly unacceptable to continue to charge premiums and or advice fees long after a person is dead in either jurisdiction. We can expect that when conduct law passes here, a conduct program will need to envisage how to identify if a person has died and how to treat products while and end-of-life process is followed. Advisers, largely exempt from the conduct programs, will inevitably be caught by either their obligations under the Financial Advice Provider license, Code, or commitments to product providers. 

You can read more at this link: https://investmentnews.co.nz/investment-news/zombie-fee-charges-rattle-amp/ 

Other daily news: 

Kōura is calling for advisers that want to offer a 'facilitated' digital advice process. This underlines the trend towards convergence of digital and human in contrast to the binary view of development in the past. 

Pinnacle Life shares details of how a change in income may affect the need for life insurance. 

Adviser business values - those that are low and those that are high - are the subject of my recent piece at goodreturns. 

Seth Godin shares with us how not to miss a deadline - and how to - in two interesting and challenging posts: https://seths.blog/2021/05/how-not-to-miss-a-deadline/

 


Partners Life share Customer Outcome Matrix update, and more daily news

Partners Life has released more information on the Customer Outcome Matrix (COM). Partners Life has implemented the system changes that allows full automation of the process. From 10 May 2021, advisers will be able to view the results of COM in MPL. Although bonus rates are underpinned until 30 September 2021, Partners Life has said that they aim to provide at least 3 months visibility to the COM reporting on any upcoming bonus commission changes.

“We have communicated regularly on the progress we have made on the Customer Outcome Matrix (COM) and are very excited to announce that we are now implementing the system changes to ensure the full automation of the process. This means that advisers will be able to view the results of COM in MPL from Monday 10 May 2021.

We have always maintained that we have wanted to provide at least 3 months visibility to the COM reporting prior to any Bonus Commission changes coming into effect, allowing you sufficient time to review your own reporting and to be able to understand the feedback and how this relates to your engagement and servicing of clients.

Please remember, as previously communicated, bonus rates are underpinned until 30 September 2021.”

In other news

Asteron Life: to celebrate underwriting rules on AsteronConnect, weekly draws will be running from 6 May – 4 June. Winners will receive $200 to use at local restaurants. 

Asteron Life: draft e-Apps which are completed but not submitted by 9pm 9 May 2021

will no longer be visible in AsteronConnect as some of the questions are changing

Asteron Life: AsteronConnect  webinars will be held on Monday 10 May, 3pm-4pm and Thursday 13 May, 9.30am-10.30am


Themes for 2021 in life and health insurance

What will be the big themes for 2021 for life and health insurance? 

  • Helping people keep their cover through disruption will continue to be a theme - although economic performance has been better than expected there remain quite a few people out there struggling with adjustment to the COVID economy. Several advisers tell me of long conversations that are essentially about conservation. They take time and they generate little revenue - this largely unsung work is of a piece with claims help and is part of the value of the commission model: the adviser isn't expecting to charge a fee for these discussions, they just want to help the client stay covered. 
  • The shift towards digital - within advice businesses, at insurers, and for consumers. Digital is an enabler of faster transactions, more efficient administration, better accuracy, and more meaningful engagement. More adviser businesses will develop better digital capability and be looking for ways to automate certain processes. That includes digital advice offerings. It also means better underwriting processes built around access to 
  • Direct - it has shown solid growth - and not merely as a proportion of the market which has shrunk, but in absolute terms. It has benefitted from a big drop in bancassurance and a big push through online social media platforms. I really want to see the quality of the offers improved in 2021, but that will probably require more work in the area above to achieve. 
  • Regtech - this is the year we begin to see regtech applied to insurer and adviser conduct programmes - analysis of all clients by a range of factors will be a vital complement to human-managed compliance processes.
  • Transition - to the new advice regime means that a lot of advisers will be spending a bit more time than usual working on systems, new processes, and disclosure requirements. That will hit productivity for a few weeks. Combined with holidays, will the nadir be the first quarter production figures with a recovery from there, or will the second quarter be the low point? I am expecting recovery and more confidence to recruit and focus on marketing to be able to get traction in at least the third quarter. 
  • Consolidation - adviser business size is definitely rising. The greater integration and co-ordination required to successfully meet new compliance requirements is reflected in the high number of authorised body structures being disclosed by FMA licensing statistics. 
  • Consumer knowledge and understanding will continue to rise as more advisers share relevant content in easily digestible digital media. Gradually the focus on what is most relevant and readily explainable will begin to percolate through consumer finance forums changing the general perception of 'good' this will further current consumer trends towards more living products and more packages of benefits. 

 

 


Aon to offer clients free wills, and more daily news

Aon has partnered with Footprint to offer current and new clients with corporate life insurance policies the option to have their wills drawn up free of cost. This partnership is designed to save clients estate admin fees and increase the number of full-time employees with wills in New Zealand.

“Aon is the first company in the sector to provide and cover the cost of Wills to all existing and new clients with a corporate life insurance policy through employee benefits – and already, several group insurers are engaged, with more to come. This industry-first move will see Aon provide security and education for all aspects of life insurance and end of life planning, saving people on average $5,000 in estate administration fees in instances where a life insurance policy has no Will attached to it.

Footprint chief executive Angela Vale says, “The data tells us New Zealanders are consistently under-Willed, especially in certain age groups. Only 37% of full-time employed people in New Zealand have a valid Will."”

Anson Davies, Aon Life general manager has said that the insurer has worked to understand what clients are looking for, while Geoff Blampied, Aon CEO stated that the industry has responded positively. Geoff continued by saying that the initiative could potentially reach 70,000 policyholders in the first phase.

“Aon Life general manager Anson Davies says, “We have done extensive due diligence to ascertain what our clients are looking for and what their employees value, and we are pleased to be launching this offer through our partnership with Footprint and in collaboration with key partners in the insurance industry”.

 

This is further supported by Aon NZ chief executive Geoff Blampied who says, “We are excited that the industry is responding positively to the initiative, which has the potential to reach around 70,000 Kiwi policyholders in the first phase.” Click here to read

In other news:

Asteron Life: Covid-19 support extended until 31 October 2020 for customers facing financial hardship

Asteron Life: MedScreen is currently not operating in Auckland while visits outside of Auckland will continue 

Nib: nib member support package has been extended to the end of September.

Financial Advice: Update on the Privacy Act webinar

What does ‘treat fairly’ mean in new conduct law?

 

 


Compliance Assurance – How to obtain it in relation to third parties?

As previously blogged, on 5 August 2020, the Commerce Commission released two reviews into an October 2019 security incident arising from the theft of computer equipment belonging to one of the Commission’s external providers in a burglary. The equipment contained a range of documents relating to the Commission’s work including confidential information provided to the Commission by businesses and individuals.

More details can be found at https://comcom.govt.nz/about-us/strategic-planning-and-accountability-reporting/security-incident-october-2019

A common contractual term relating to confidentiality between two parties might state that they will both, “take all steps practically possible to prevent any unauthorised use or disclosure of any Confidential Information.” 

The question then arises as to how each entity can obtain ongoing assurance that the other is acting in compliance with this agreement.

With the Financial Markets (Conduct of Institutions) Amendment Bill progressing through Parliament, this question can be extended to consider how banks, insurers and non-bank deposit takers will be able to obtain the required ongoing assurance that their respective intermediaries are fulfilling the conduct obligations being imposed by this proposed legislation.