(Recasts, adds comments from the Prime Minister and Finance Minister)
By Praveen Menon
WELLINGTON, Jan 29 (Reuters) – New Zealand’s government vowed on Tuesday to regulate conduct of the banking and insurance industries, after a scathing report on Tuesday that slammed life insurers for putting sales over customers.
New Zealand started reviewing the conduct of its financial sector after the Royal Commission in neighbouring Australia launched an inquiry into the country’s financial services following months of revelations of wrongdoing.
A review of banks’ conduct that was released in November had found significant weaknesses.
A joint review of 16 life insurers by the Reserve Bank of New Zealand (RBNZ) and Financial Markets Authority (FMA) was released on Tuesday, which concluded that the firms had a culture that risks prioritising sales over customers.
Prime Minister Jacinda Ardern said practices described in the review were “simply shocking”.
“The fact that the report highlights similar concerns as the bank review…..indicated to us that we need to act,” Ardern told reporters at a news conference.
The review found bad practices such as insurance policies being sold to people who were ineligible for cover, premiums continuing to be charged for policies that were no longer in effect, and policyholders not being effectively notified of increases in premiums.
Some consumers were sold new policies that are not in their best interests so the salesperson can earn a commission, the report said.
The report also slammed the senior management of firms for not setting the tone for managing conduct risk and prioritising good customer outcomes.
None of the companies were named in the report. There are about four million life insurance policies held in New Zealand.
Finance Minister Grant Robertson said the government aims to get rid of sales incentives in the insurance industry that are driving behaviour that is not in the best interest of consumers.
He also wants to bring in an appropriately resourced regulator to monitor the conduct of banks and insurance companies, with strong penalties for breaching duties.
“Because the issues identified with insurance and banking are similar, we will consider changes that apply across both sectors,” said Robertson.
The government plans to release a consultation paper on the changes by May and introduce legislation later this year, he said.
The life insurers’ review said a small number of cases of potential misconduct were subject to investigations for breach of the law.
The report said some issues and themes were similar to those highlighted in the Australia Royal Commission, albeit on a smaller scale.
A year-long inquiry by the Royal Commission that exposed widespread wrongdoing in Australia’s financial industry ended in November and a final report is due by Feb. 1.
The inquiry into Australia’s financial sector followed a string of scandals involving rate rigging, money laundering and unethical conduct in wealth management and insurance.
“The industry must act urgently and undergo major change to address these weaknesses, as their services are vulnerable to misconduct and the escalation of issues that have been seen in other countries,” Reserve Bank Governor Adrian Orr said in a statement releasing the findings.
All 16 insurers will receive individual feedback and they would need to report back to the regulators with an action plan by June 30, the statement said. (Reporting by Praveen Menon; Editing by Michael Perry & Kim Coghill)