Thousands of general insurance customers are set to receive refunds after payment mistakes were revealed as part of reviews ordered by the financial regulator.
The Financial Markets Authority asked general insurers - those who offer house, contents and vehicle insurance as well as travel and health insurance - to review their operations to make sure there were no major conduct issues in the wake of its 2019 report on the life insurance sector.
That report which was carried out jointly with the Reserve Bank found widespread problems around conduct and culture in the life insurance industry.
And now the FMA has released a damning evaluation report on the general insurance sector, claiming that most businesses have a poor understanding of and commitment to good conduct and culture.
Conduct and culture is based on how businesses treat their customers and whether they are doing what they promise.
Of the 42 insurers the FMA asked for reviews just two - IAG and Medical Assurance Society - were found to be satisfactory with 95 per cent of the responses considered to be inadequate or deficient.
Clare Bolingford, FMA director of banking and insurance, said while it was pleased to see progress made by some insurers she was quite disappointed in the responses of others.
"It didn't meet what we expected when we asked them to do this work in the first place.
"We put this down to the firms not understanding the conduct risks they are running in practice and how their customers can come to harm."
As part of the reviews it found examples of poor conduct where customers were paying more than they should be through being double-charged or not receiving promised discounts for multiple policies or where customers held policies they could not claim on.
As part of its evaluation it asked the insurers to review their products and policy-holder portfolios which only 22 carried out. Just four of those did not identify any major issues.
Six insurers withdrew poor value or legacy products from sale as a result of the reviews and the FMA report notes that several insurers now have large-scale remediation activity underway as a result of the reviews.
"While the remediation activity is good news for thousands of customers who will be receiving refunds, the issues themselves are possibly the most disappointing aspect of our review," the report noted.
"The basic requirement that premiums are accurate, transparent, administered correctly and with value communicated to the customer has clearly not been met in a number of situations."
The FMA report noted this was particularly important for fire and general insurance products where it was very hard for the customer to understand how their premiums have been calculated.
Bolingford said while it hadn't seen the systemic misconduct issues that came out of the Australian Royal Commission it found insurers were not focused to date on making sure they had got the right controls in place to make sure customers were getting the outcomes they should be.
"Some of the remediation that we have been made aware of does go back a number of years in some cases.
"There are a small cohort that were charged twice. What we expect of firms is that they should be picking up these things on a regular basis. We know errors are going to happen. But what we expect is they have got proper controls so they get picked up and then get addressed quickly. And unfortunately that is what we have seen again, very much along the lines of the life insurers and banking, is that those controls haven't been in place to date with some of these firms."
Bolingford said consumers worried about the findings could protect themselves by reviewing their insurance policies regularly to make sure their needs were still being met and that their policy was the latest available.
She also urged anyone who had been offered a multi-policy discount at the start of their insurance to check the discount was still in force.
"Really check if you were offered a discount at the point of sale, for example if you got house and contents with the same provider as car insurance and they said put it all together and we will provide you with a discount - actually ask them whether that has been applied. One of the major findings of the report is that we saw multiple discount failings."
Bolingford said it would now be writing back to all the insurers individually to set out what areas they needed to change before a new licensing regime comes into effect. The law governing the regime the Financial Markets (Conduct of Institutions) Amendment Bill (COFI) is still going through Parliament.
Bolingford said it also needed to consider whether it currently had any powers to take further action against the insurers.
"We have very limited powers at the moment" It is limited to taking action over breaches under fair dealing provisions of the Financial Markets Conduct Act.
"We would need to establish whether any of the remediation or conduct has been misleading or deceptive in any way. This is part of the reason why we need the government to bring forward that legislation so we can do more monitoring in the firms and then take action."
Tim Grafton, chief executive of the Insurance Council of New Zealand (ICNZ) which represents 16 of the 43 insurers which the FMA evaluation covered, acknowledged the report and the need for constant improvement of the sector.
"The snapshot we have of the sector as at October 2019 shows that much improvement is needed before the Financial Markets (Conduct of Institutions) Amendment Bill (COFI) comes into force as expected in early 2023.
"This gives the insurance sector the opportunity to work proactively with the FMA to address all areas of concern so we can meet their expectations at that time."
But Grafton said it was important to note that much had been done since the review was undertaken almost two years ago to improve systems and customer outcomes.
"We do not believe that the report reflects the current state for ICNZ members.
"Our sector is fully committed to good customer outcomes as seen by the multiple responses to customer vulnerability arising during and from the Covid-19 lockdowns."
Grafton said that insurers must continually earn the trust and confidence of customers by making improvements to all aspects of their operations - including governance, systems and processes, products and distribution.
"The new conduct regime under COFI reinforces this and provides the sector 18 months to get it right."
He said ICNZ was fully supportive of steps to ensure good customer outcomes and was confident its members shared this commitment.
General insurance review findings:
• Two out of 42 insurers met the FMA's expectations in full
• Just nine insurers recognised customer vulnerability as a key issue
• 22 insurers completed a product review, only four found no major issues
• 30 out of 42 insurers completed an action plan but 19 provided insufficient detail
• Only 14 insurers demonstrated they had complete and presented all five items in their action plan to their board