Will 2020 be the year New Zealand's life insurance industry calls time on policy churn and excessive broker commissions?
Despite the Financial Markets Authority and Reserve Bank's efforts over the past 18 months and Commerce Minister Kris Faafoi introducing the Financial Markets (Conduct of Institutions) Amendment Bill into Parliament in December, the short answer is - probably not.
Insurance - are you covered?:
Monday: What you need and what you don't
Tuesday: House, contents and car insurance
Wednesday: Health insurance
Thursday: Life and income protection insurance
Friday: Travel insurance
Saturday: All your insurance questions answered plus the best tips and advice from the experts
The industry's economic significance is far from small: there are about four million personal insurance policies in force with annual premiums totalling $2.57 billion. Of those about 1.65 million are life insurance policies.
The FMA and RBNZ exposed the industry's degree of dysfunction through their conduct and culture review and highlighted that, not only are commissions way out of whack with international comparisons, but churn is endemic.
The FMA has said only 2 per cent of sales of life insurance policies are genuinely new, rather than just churn, or switching customers between policies to generate income for life insurance agents.
The industry disputes this figure. Naomi Ballantyne, founder and managing director of Partners Life, for example, has said about 60 per cent of her company's sales are new policies.
The industry also argues that there are many legitimate reasons for changing policies, especially if the customer's circumstances have changed.
However, any long-time observer of the life insurance industry would know how obsessed it is with figures showing new sales. Little interest is shown in other statistics, such as how much existing business each firm has in place.
That's because churn actually is the name of the game.
Reserve Bank figures show commissions in New Zealand amount to about 25 per cent of total premiums paid each year, far higher than in other countries – Mexico and Hungary are the next highest at about 15 per cent with Australia at about 12 per cent and the United States about 9 per cent.
Upfront commissions on new policies can range from about 170 to 210 per cent of the first year's premiums.
In September, the two regulators expressed their disappointment with the industry's response to their review and said there is significant work to be done before they will be satisfied.
The lack of action was despite 16 life insurers identifying more than 75,000 customer problems worth at least $1.4 million.
The problems the regulators identified ranged from selling policies to people who were ineligible to ever make claims, overcharging and incorrectly recording basic details such as date of birth to continuing to charge premiums on policies that had been cancelled.
They found limited evidence of products being designed and sold with good customer outcomes in mind, that some insurers did little or nothing to assess a product's ongoing suitability for customers and that companies were slow to respond to or remediate complaints.
The FMA has said it wants the government to give it more powers to prevent problems before they happen and that is what is supposed to be addressed by the legislation Faafoi has been working on.
The bill will introduce a licensing regime, require all financial institutions and intermediaries, such as insurance brokers, to comply with fair conduct principles and regulate how salespeople are paid, including banning volume-based incentives or volume targets.
But the bill hasn't even had its first reading yet, so it's anybody's guess on how long it will be before it goes through the select committee and public consultation stages, and its second and third readings, before it finally becomes an act.
Law firm Chapman Tripp describes the bill as "largely framework legislation, with the 'meat' to come later. The timeframes for introduction of the requirements can be measured in years rather than months."
A number of details won't be in the bill but in the accompanying regulations and "often the devil is in the detail", Chapman Tripp noted.
Another law firm, MinterEllisonRuddWatts, said the bill needs refining to assess how it will operate in practice.
"The bill should be carefully considered to determine whether there may be unintended consequences," its commentary said.