Daily news update: FMA lodges claims against ANZ, and more stories

The FMA has lodged claims against ANZ. The FMA has stated that ANZ charged customers credit card repayment insurance (CCRI) when in fact there was no cover provided for those customers. In June 2019 ANZ notified the FMA of some CCRI policies duplicates and issuing and failing to cancel CCRI policies for ineligible customers while charging premiums on those policies. These issues were identified by ANZ between May and June 2018.

“The Financial Markets Authority (FMA) has filed High Court proceedings against ANZ Bank New Zealand (ANZ), alleging the bank charged some customers for credit card repayment insurance (CCRI) policies that offered those customers no cover.

The FMA proceedings have two causes of action. Firstly, that ANZ issued duplicate CCRI policies to some customers, which provided no additional benefits or cover, and charged premiums on those policies, during the period April 2014 and November 2019. Secondly, ANZ issued and failed to cancel CCRI policies for ineligible customers, also charging premiums on those policies, during the period 1 April 2014 – May 2018. These two issues relate back to at least 2001. However, the FMA claim reflects the introduction of the Financial Markets Conduct Act 2013, which came into effect from April 2014.” Click here to read more

In other news:

RBNZ: RBNZ is set to work on South Pacific Remittances, Climate Change and their Te Ao Māori strategy.

RBNZ: RBNZ have acknowledged the efforts of the financial sector in meeting the needs of customers.

FMA: Time for financial advisers to step up on KiwiSaver


Daily news update: FMA investigate advice regarding KiwiSaver , and more stories

The FMA is looking into an adviser that recommended clients move savings into more conservative accounts during Level 4 lockdown. The FMA has stated that this advice could cause great damage to clients. Clients that accepted the advice provided in a mass email would have locked in the losses caused by the market volatility. As a result of the adviser’s actions, the FMA has reminded the public that they should consider all options before making any changes.

"The AFA sent a bulk email in March 2020 to clients urgently recommending they move their savings in KiwiSaver and other funds to less risky options.

The FMA was alerted to the communication after receiving a complaint from one of the adviser’s clients.

FMA head of supervision James Greig said the advice was inappropriate and had the potential for significant harm.

"The FMA has a low tolerance for poor conduct that poses risk to customers as a result of the Covid-19 crisis, especially because New Zealanders are looking for financial guidance at this time.” Click here to read more

In other news:

FMA: Providers working to help panicked switchers

PartnerRe: PartnerRe announces two new CEOs

Partners Life: New independent director at Partners Life

Is a brokerage no longer a “lifestyle” business?

Reserve Bank: Reserve Bank governor believes rates can go lower


Fidelity Life on track to resume normal activity

“Labtests, Med Lab and many other labs are now back up and running for insurance-related blood work. 

 

Some GPs who were unavailable during the level 4 lockdown are also now resuming limited services, including for insurance medicals. 

 

Please note there may be limited availability for insurance-related blood work and medical exams. We recommend your customers phone ahead to ensure their chosen lab is open and they’re able to make an appointment.”

As a result, Fidelity Life are able to begin getting back to normalcy. 

“Now that lab services have resumed, we can start requesting the blood tests needed to progress pending cases. Our Underwriting team will go back over your pending cases and request these tests, however you’re also welcome to get in touch so we can action these promptly.”  

 

In other news:

SiFA: CoFI needs complete rewrite

Southern Cross: Health insurer Southern Cross charts course for clearing surgery backlog

AMP: AMP reports severe coronavirus hit

Partners Life: Lessons Of Resilience And How Saying “No” Is Part Of The Journey

AIA: Dealer groups should strengthen: AIA

Advisers say client engagement is "significantly up"

RBNZ: Advisers back removal of LVR restrictions


COVID-19 Impacts on claims - which insurers win or lose?

COVID-19 and associated policy responses impact all types of insurance differently, as media reports have somewhat highlighted recently. 

Vehicle insurers are enjoying a drop in claims due to the low levels of driving, and therefore accidents. Sense partners has a dashboard showing an index for traffic congestion with rates running between 20% and 40% of pre-lockdown levels. As the Insurance Council points out, not all car insurance costs come from driving, consider these complete idiots, but nevertheless, vehicle related thefts should be down too. Guyon Espiner, using overseas experience, estimated the saving to be $100million. I doubt it, especially as the contry gets moving again. There is a saving. There is also a cost - as the economic impact begins to bite, there will be missed premiums and cancelled coverage. Deferred maintenance on vehicles will take its toll as the months and years roll by. New cars are safer too and our fleet will age as people defer vehicle purchases. Some changes could be permanent - converts to cycling and working from home may find driving reduces to the point that the household can do with one less car. A handy change if they have taken a hit to income. But economic impacts will take time to flow through and for now, vehicle insurers have a saving. 

Health insurers are enjoying a drop in claims too as all non-essential medical care was deferred. This is opening up again, but capacity constraints mean that we simply cannot get all the deferred treatment done in the next month - or even the next few months. That has enabled Southern Cross to give back $50 million to policyholders and nib to defer a premium increase to next year. However, for reasons, 

Life, trauma, and income protection insurers will experience an increase in claims. The policy response in New Zealand has limited COVID-19 deaths very successfully. In fact our 'best case' scenario published in the week we started level four restrictions estimated 1,785 deaths and a direct claims impact of $22.8m. That excluded deaths from other causes running above trend. It is now clear that although we could see the number of deaths remain low (assuming no breakout of infection again) we can expect to see the death rate run significantly above trend - albeit much more modestly than the examples I gave from overseas in this article. Why? Although accidental deaths will fall this is expected to be off-set by other factors:

The first is that (as we have previously reported) COVID-19 deaths will probably be underestimated in current statistics as shown by overseas experience, more evidence came from the UK overnight as they restated upwards their COVID-19 death count, plus deaths from other causes will rise as a consequence of the lock-down and deferral of non-essential medical care. In the UK they expect cancer deaths to rise by 20% for this reason.  Life cover is typically five times the amount of trauma cover sums insured - so some trauma claims of $50,000 or $100,000 and a recovered living person will instead become a life insurance claim of $200,000 or $500,000, with a grieving family. Cancer is not alone in benefiting from early detection and treatment. Again, from the UK, medical experts are worried that there aren't enough people attending emergency rooms. For example: 

"... the British Heart Foundation (BHF) said on Thursday that as many as 5,000 people a month who would normally have gone to hospital with symptoms of a possible heart attack are putting their lives at risk by staying at home." from this article.

Again, an earlier intervention, and a smaller insurance claim is being turned into one which is larger, and has a far-reaching economic effect: many people experience their first heart attack while relatively young with plenty of life ahead of them: including a life contributing both personally and economically to their households and communities. These excess deaths will be experienced quickly (unlike the cancer deaths which may take months to emerge). They undoubtedly form a significant part of the excess mortality being seen in other countries.

This leads us to the psychological effects of the pandemic and the economic impacts arising from it and from the policy responses to it. Some of these will be felt in life insurance claims. In the UK researchers see the conditions for a sharp rise in suicides. Our suicide rate is 80% higher than the UK's and our mental health services are an identified weakness in overall health provision. According to Treasury economic forecasts we are headed for a bad recession. It will affect people. Some will die and some will experience bad mental health impacts, claiming on income protection policies. These impacts will likely be distributed over the next four years, based on past recessions, but the impacts will be felt for decades: some families, and the lives of their children, will be blighted by years of lost income and trauma due to the effects of losing a loved on to either suicide, or a prolonged period with severe symptoms. The impact of that on their long-run health, wealth, and happiness will be enormous. For life insurers the claims impacts can run from a $200,000 death claim (using a typical sum insured) to an income protection claim in the region of $1m over ten years. That is contributing to substantial changes to the sale and issue of income protection contracts. 

In sum, the impacts are hard to model and quantify, but they are not zero, they are negative - increasing claims costs - and they are likely to be well within the resources of virtually all insurers to manage. Having said that, you won't have to rely on my gut feeling: the Reserve Bank, however, has already asked for insurers to provide details of stress tests. 

Further work available:

I shall be asking my data folk to follow up in seeking more information about this and I shall expand on the estimates in my forthcoming quarterly market data update. Subscribers to my quarterly life and health sector report are welcome to have a copy of our COVID-19 deaths modelling. Just email me. 

 


More things not to do during confinement...

...in this case, relax, as David Chaplin has a list of deferred regulations that you won't have to deal with. The list of deferred regulation released by the RBNZ, updated to 9 April 2020, can be found at: https://www.rbnz.govt.nz/regulation-and-supervision/banks/relationships/council-of-financial-regulators-terms-of-reference


RBNZ puts changes on hold, will the FMA and the Minister do the same?

RBNZ announcement today puts a whole raft of changes on hold for a period. Are the FMA and Minister considering something similar for the wider financial services sector?

The RBNZ announcement is available at https://www.rbnz.govt.nz/news/2020/03/regulatory-relief-to-provide-headroom-for-customer-focus-and-risk-management


RBNZ has plenty of teeth

For the second time in six months the RBNZ has shown it has plenty of teeth. It has already insisted that AMP provide an additional $400m to support the balance sheet of AMP Life, and has again insisted that it will not approve of Resolution Life’s application to buy AMP Life for AU$3 billion if the policyholders’ rights and obligations would not be protected. Click here to read more. This is solid evidence that media reports that alleging that the RB has inadequate tools to police the deal are wrong. 


Council of Financial Regulators Strategy Focus

29 Nov 2019 – RBNZ & FMA announced that the Council of Financial Regulators had set its priorities for the 2020 year, incorporating:

  • Climate change
  • Financial inclusion and consumer engagement
  • Conduct and governance
  • FinTech
  • Residential Property Insurance
  • Credit Unions
  • Review of the Regulatory System Charter

Climate change earns its place at the top of the list mainly due to the risks general insurers and banks face. For general insurers the risks are more obvious: losses due to extreme weather conditions are already a factor considered by most. That they are increasing now means that regulators are seeking those risks to be quantified and stated as a starting point for assessing systemic risk and portfolio issues.

Then exclude the points on residential property insurance and credit unions and you have a good guide to the issues that may inspire thematic reviews, or inform things like the development of license conditions for FAPs.

Consumer engagement is particularly relevant to advice process, but will also turn up as a strong theme in conduct of financial institutions. A more engaged and informed customer is more likely to make better use of their product, complain when things go wrong, and understand disclosures.


The industry, versus companies in the industry

The New Zealand Herald coverage of RBNZ research and recent media releases reminds me of one of my favourite jokes about economists:

Three economists are taking a day off at the archery range. Being largely desk-based folks they aren't very good, but they're having fun. One draws their longbow shakily, aims, shoots, and misses the target by a metre to the left. The next draws their bow with effort, aims to the right, shoots, and misses the target by a metre to the right...
...the third economist then shouts "bulls-eye". 

So when a report worries about both high levels of profitability (applicable to some companies) and lower solvency margin (applicable to different companies) and the media reports about both talking about 'the industry' it is this use of an 'average' that is confusing for readers. How can the sector make too much money and run down solvency capital? It doesn't. Some companies have low margin businesses and tend to have falling margins of capital above minimums and others have big margins and have stable or rising levels of capital. The story is different for each company.  

The question of insurer efficiency, and in aggregate insurance industry efficiency, is an important one. It is complicated too. Unpacking it is hard and unlikely to be done in consumer-focused articles. Take just one issue: underwriting information. Major gains in insurer efficiency could be made is access to medical information, much like banking information, could be made more available at the discretion of each customer. If permission were granted to access ministry of health databases the results could make underwriting so much easier, and therefore quicker, and cheaper. It could be convenient, fast, and accurate. Usually we only get one, or sometimes two, of those three. But when the question of enhanced access to medical information is raised, even if that were controlled by the customer, the reaction from media is usually negative. So we are stuck with memory-test questionnaires that place disclosure burdens most heavily on the customer.