Nearly half a million life insurance customers have been paid out $43 million in remediation since 2018 for poorly sold products, the financial markets regulator says.
And firms are expected to report more problems as they continue to look for and find historic issues.
Clare Bolingford, director of banking and insurance at the Financial Markets Authority, told attendees of the Financial Services Council conference in Auckland today that since its 2018 conduct and culture review that many providers had been self-reporting concerns to it.
"In that time – almost four years – 225 such issues have been reported to us involving life insurers, many the result of creaking systems and weak controls.
"Nearly half a million customers have been impacted, and more than $43m paid in remediation. And that's just for the one-third of issues whose impacts have been fully assessed."
That remediation has jumped up since September 2019 when the insurers had identified 75,000 customers impacted with a remediation value of around $1.4m.
One area that has caused particular problems for the industry has been credit card repayment insurance; virtually all have stopped selling it now.
Bolingford said it highlighted the product last year because it had low or poor value for large numbers of customers, not helped by the way it was sold.
"The more firms have looked, the more problems they've found."
In June Cigna New Zealand was ordered to pay $180,000 to the FMA after two life insurers it now owns admitted breaching the law in relation to credit card-repayment insurance policies.
OnePath Life (NZ) and Cigna Life Insurance New Zealand were found to have breached fair dealing provisions of the Financial Markets Conduct Act 2013.
The breaches related to misleading representations ANZ made when issuing monthly credit card statements to certain ANZ customers who held credit card-repayment insurance (CCRI) policies with Cigna and OnePath.
Bolingford said it was highly likely more issues would be self-reported as companies continued to look into historic issues.
The FMA has been charged with licensing the finance industry for conduct in recently passed legislation under the Conduct of Financial Institutions law.
The new regime came about after a gap in the monitoring of conduct and culture of banks and insurers was identified in the wake of Australia's Royal Commission into Misconduct in the financial sector.
Some called for a Royal Commission in New Zealand as well but instead the FMA and the Reserve Bank undertook conduct and culture reviews of the banks and life insurers.
The life insurance review found the industry needed a major shake-up as it was doing a poor job of meeting customers' needs.
Bolingford said the reviews had helped the FMA to deepen its understanding of the bank and insurance sectors and enabled improved engagement with the industry.
It had also helped root out conduct problems and prioritise the interests of customers.
"When we asked firms to go and check their business for signs of poor practices, we did find - and in fact are still being informed about – multiple issues negatively impacting customers and some unfair treatment.
"Many of these have now been fixed and customers put right, but many are still being worked through. And I expect more will continue to come to light, particularly in firms that may not yet have properly tested the areas where harms to customers can occur."
Bolingford said the new law would be a move away from box-ticking towards a focus on better outcomes for consumers.
"It puts the onus on institutions to consider what fairness looks like, and then to formalise that in what's known as a 'fair conduct programme' specific to each entity.
"These programmes will need to be approved by the firm's board before they apply for a financial institutions licence, which they'll be able to do from next year."
Once the regime was in place it would be holding insurers to account, she said.
Bolingford said her message to the sector was that the completion of a conduct action plan was not the end and a more fundamental shift was needed to bring customer fairness into every aspect of decision-making.
"Life and health insurance are long-term products, which many people keep on buying for decades – often with the same provider – unquestioningly and faithfully.
"But sadly, some customers only find out there are issues with their cover at claim time - which is too late."
That was why it was important that product features and exclusions were properly understood as well as how premiums were set.
Bolingford said she hoped to see greater transparency, better communication and more customer understanding of the products they were sold once the regime kicked in.