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Insurance firms over-charge or misplace thousands of customers – review

Newsroom logo Newsroom 21/07/2021 Jonathan Milne
a person standing in front of a building: Clare Bolingford, the Financial Markets Authority director for banking and insurance: "We are talking about thousands of customers." Photo: Supplied © Provided by Newsroom Clare Bolingford, the Financial Markets Authority director for banking and insurance: "We are talking about thousands of customers." Photo: Supplied


A damning review by the Financial Markets Authority requires insurers to embark on 'large-scale' projects to issue refunds and recompense to victims.

Thousands of insurance customers are being over-charged, double-charged or placed on out-of-date insurance plans, a major review reveals.

The Financial Markets Authority, which has already reported back on failings in the banking and life insurance industries, has now published its most critical report yet.

Of 42 fire and general insurers, just two met the Authority's requirements. Clare Bolingford, the Financial Markets Authority director for banking and insurance, said 95 percent of insurers' responses were considered inadequate or deficient – and many disclosed failings impacting on their policy-holders.

"We are talking about thousands of customers," she told Newsroom.

It comes in the wake of big floods across the West Coast and Marlborough, expected to lead to millions of dollars in insurance claims – but now there are questions over whether policy-holders will get what they are entitled to.

The report revealing insurers' "poor conduct" comes as:

* Insurance Council chief executive Tim Grafton warns that with two major flood events already this year, this year could top last year's $270 million worth of insured losses. “Obviously we don’t know how this year is going to track, but having two big, extreme weather events is indicative of the kind of pattern that we will experience with climate change.”

* The new Council of Financial Regulators, which includes the Financial Markets Authority, launches a new public website to help them effectively regulate New Zealand's financial system.

* The Financial Markets (Conduct of Institutions) Amendment Bill awaits its second Parliamentary reading; when it is passed later this year, the Financial Markets Authority till take on responsibility for licensing, regulating and monitoring insurance firms – so this week's report is a shot across the bows.

"We have some scepticism about whether, if we hadn't asked them to do these reviews, they would have found these issues. That's because of their weaknesses in controls."

– Clare Bolingford, Financial Markets Authority

The Authority has already taken ANZ's insurance arm to the High Court this year, where the bank was fined $280,000 for misleading more than 800 customers with credit card insurance policy breaches. The bank charged customers for credit card repayment insurance which offered no cover or benefit, and issued duplicate policies dating back as far as 1998 in some cases. 

But at present, the Authority can take enforcement action only where firms have been deceptive or misleading in their conduct; the new law will give it far more wide-reaching powers.

Examples of the sorts of breaches that the Authority will be able to act on are disclosed in this week's report: it reveals cases of insurers double-charging customers a number of times, not giving customers promised multi-policy discounts, and significantly overcharging some premiums due to poor IT systems. Many insurers fail to actively monitor product suitability, or to withdraw poor value or legacy products.

Bolingford said the bank and insurance sector volume incentives for sales staff – which were castigated by an Australian Royal Commission – were commonplace here. Just 28 of the 42 insurers have removed the sales incentives, or have now committed to removing them.

Bolingford said one firm had been charging double premiums to some customers, due to a systems error – and that was just the tip of the iceberg. A number of firms were failing to apply their multi-policy discounts to a "reasonably significant" proportion of their customers.

"I think we have some scepticism about whether, if we hadn't asked them to do these reviews, they would have found these issues," she said. "That's because of their weaknesses in controls."

The report says: "Several insurers now have large-scale remediation activity underway as a result of our reviews."

Problems that they're having to fix, and reimburse customers for, include pricing and multi- policy discounts not being applied, over-charging on the agreed premium amount, no-claims bonuses not being applied, late payment fees being charged without appropriate cause, customer data (such as date of birth) not being accurate, and out-of-date product features and benefits that are unlikely to ever be claimed.

"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 finds.

"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 only two insurers that met expectations were Medical Assurance Society and IAG. 

“The majority of claims to date are for contents insurance, and we expect the volume of claims to increase considerably over the coming days as flood waters recede and more people can return to their homes to assess the damage.”

– Dean MacGregor, IAG

Dean MacGregor, executive general manager of claims at IAG, said the firm had been working hard to support affected customers through the floods, and had received 573 claims by Monday –though a significant volume was expected to come in over the next few days.

“Our thoughts are with those who have been affected by the severe weather and flooding event that caused significant damage to homes and properties in the Buller region and other parts of the country over the weekend,” MacGregor said.

“The majority of claims to date are for contents insurance, and we expect the volume of claims to increase considerably over the coming days as flood waters recede and more people can return to their homes to assess the damage.”

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