More conduct rules on the way

Abill that will put more conduct obligations on insurers has passed its first reading in Parliament. The Conduct of Financial Institutions Bill was drafted after reviews by the Financial Markets Authority and Reserve Bank, which were critical of banks and life insurers.

It requires insurers, banks and non-bank deposit takers obtain a licence from the FMA, as well as their other regulator-required licences.

It also requires them to comply with “fair conduct” principles to ensure that customers and consumers are treated fairly. That will mean paying attention to their interests from the design of the products to after-sale client servicing.

They will also have to have a conduct programme to back up their adherence to these principles, enforcing client-first obligations at all levels of the business.

Insurers will also have to ensure that their brokers comply with that programme. Volume-based incentives for staff and intermediaries are set to be banned and there will be regulations determining how other remuneration structures can be set.

The Ministry of Business, Innovation and Employment has acknowledged that may mean a reduction in upfront commissions for life insurance advisers.

“The recent reviews, by the Financial Markets Authority and Reserve Bank of New Zealand, into the conduct of banks and insurers found factors such as target-based sales incentives were leading to behaviour that put profit ahead of people,” Commerce and Consumer Affairs Minister Kris Faafoi said after the bill was referred to select committee. “The Financial Markets (Conduct of Institutions) Amendment Bill delivers on a number of changes to require banks, insurers and other

financial service providers to have the right systems in place for ensuring they treat their customers fairly.

“Last year I announced a ban on incentives that are based on meeting sales targets, along with a new conduct licensing system for banks, insurers and non-bank deposit takers, such as credit unions.

“These measures will be implemented through obligations for licensed entities to have in place and comply with programmes outlining the standards of fair conduct their business operations will need to meet.

“The conduct programmes will also apply down the chain to intermediaries that licensed entities use to distribute their products and services,” Faafoi said. To support the bill, the FMA will have a wide range of tools to require financial institutions to make changes to their business.

“Since the conduct and culture reviews, the Government has moved swiftly to see that the industry addresses conduct and culture issues. “The Government also recently announced changes to make insurance contracts fairer and more transparent for consumers. These changes will complement the new conduct regime by ensuring customers understand their policies and are treated fairly in all their dealings with insurers,” Faafoi said. National is not supporting the bill in its current form. MPs highlighted particular concerns about the potential for adviser commissions to be limited in a way that disrupted business structures.

Industry commentators have also raised concerns about the potential duplication of obligations when this bill is viewed alongside the Financial Services Legislation Amendment Act, which introduces a code of conduct for financial advisers.

‘I’VE SEEN THE POWER OF INSURANCE FIRST HAND’

Julian Clarke, director of Apex’s Christchurch branch, shifted to the industry after a long career in law.

How did you get into the industry? After a long career in another industry I decided that it was time for a change in 2018 and I looked around for an industry where I felt that I could make a fundamental difference to people‘s lives if I did a good job. Having seen the effect of fire and general insurance in place for my own business during the Canterbury earthquakes, I knew that having good insurance in place can make a fundamental difference to the survival of a business, and indeed even make it flourish while your competitors are floundering. I spoke to a number of businesses about getting into the industry and was delighted with my choice in Apex Insurance Brokers who have recently and deservedly won the 2019 IBNZ Best Insurance Workplace award. The culture of any business that I work in is of paramount importance to me. The team at Apex Insurance could not have been more supportive and welcoming to me right from the outset.

What did you do previously? Previously I was managing partner for almost 20 years of one of New Zealand’s largest law firms. Even though I am now an insurance broker, I remain a registered lawyer, and find my legal skills and broader business knowledge are extremely useful for my clients and for the interpretation of policy wording. At the end of the day, insurance policies are a legal contract. Having been a customer of the insurance industry for so many years has given me an invaluable insight into the needs of my clients now that I am on the other side of the table.

What do you enjoy about your job? I love being back at the coalface dealing with clients who are creating or selling products and services. I particularly enjoy taking the time to understand each client’s business and to explain to them the various risks they face and how certain insurance products can help them to mitigate those risks. It is enjoyable seeing those clients reach a level of understanding that they previously did not have, and therefore be prepared to pay for the insurance cost now that they understand how it might respond.

What are the biggest challenges? Making sure that you choose your clients carefully. It’s important to choose not to act for some clients who will try to put pressure on you to deliver a compromised service or advice. It’s a given that those types of clients are going to cause you more pain than they are worth. Of course, identifying them at the outset can be a challenge!

What’s the biggest opportunity from here? There are some fantastic brokers out there and then there are some who seem to have lost the art of client service or taking the time to be accurate in their work. Like any industry, I believe there is opportunity to perform at a high level and deliver accurate consistent results for good clients that will see them then become your advocates.

How big a challenge will it be to adjust to the new rules? Our firm is already well ahead of the curve in terms of Level 5 qualifications etc, but for some brokers that is going to be a challenge that they leave until too late. I actually don’t think it will be too much of a challenge at all. Having worked in and alongside other industries that have gone through legislative upheaval, the reality is that we will soon adapt and overcome any required changes. Yes, there will be more bureaucracy but I do believe that a higher standard of output will be delivered as a result.