Article Synopsis :
New Zealand’s regulator, the Financial Markets Authority, has issued its strategic risk outlook for 2019.
The report says that general insurance penetration in New Zealand is fairly good, though life cover is much lower. The sector is dominated by a few companies, particularly in areas like healthcare.
A buoyant market
Gross premiums topped $10.1 billion as at March 2019, with gross claims of $5.8 billion. The FMA acknowledges that consumers have access to products, but the current situation is set to change
Although New Zealand currently has good access to general insurance products, this could change as insurers factor in climate change and geological risks into their risk assessments.
Big data and artificial intelligence (AI) are beginning to influence the pricing of risk. While this may make pricing more accurate, the FMA is concerned that some consumers may find it more difficult to either access or afford insurance.
The distribution channel is highly intermediated especially in life insurance and commissions are high compared to other mature markets around the world.
A long hard look at the market
The FMA’s conclusions about the market are that insurance didn’t throw up any systemic problems with the conduct of the players in the market. However, it did show up a lack of processes to monitor conduct risks along with some regulatory gaps.
The FMA has concerns about the insurance industry’s incentives and commissions. It held similar concerns about the banking industry, but the banks are making changes. It feels firms must continue to work on establishing best practice around incentives and good conduct in terms of managing risks.
Room for improvement
FMA identified a number of specific areas it would like to see the insurance industry tighten up practices and impose more robust processes
- Serving customer needs and managing conduct risks must receive greater attention in insurers’ governance and culture.
- Conflicts are poorly managed and incentives drive sales, to the detriment of customer outcomes.
- Systems are inadequate, as are the controls and processes to identify, manage and report misconduct.
- The needs of customers are not placed above the design and performance of products.
- Conduct issues are dealt with too slowly or insufficiently and there is insufficient senior management focus.
- There has been insufficient investment in IT systems with a reliance on manual processes, increasing the risk of cyberattacks.
The current state of affairs in New Zealand may be up for grabs, should the government choose to make changes in response to the FMA’s review.
It might choose to alter the FMA’s role or the regulation governing insurers and this may impact risk for insurers in the market and drive culture change within insurers.
This may in turn influence changes in market structure and impact horizontal and vertical integration.
The FMA will continue to the effect of potential disintermediation and how insurers choose to treat vulnerable customers.
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Digital Insurer's CommentsThis is the latest of strategic papers we have featured from different jurisdictions. The story is more or less the same as for other mature markets. The market is good, but could be better and the regulator has concerns about consumer safety as businesses adopt digitalisation.
Though New Zealand’s FMA is making the same noises as other regulators, there is a chapter on each financial market beyond banking and insurance, which makes for interesting reading.
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