The government will fast-track consumer protection measures in the financial sector, after a damning report into life insurance companies.
Photo: RNZ / Rebekah Parsons-King
A report by the Financial Markets Authority and the Reserve Bank found some companies charged customers for expired policies, sold policies people could not legally use, and had poor systems and attitudes for fixing mistakes.
It follows a report on banking conduct and culture released in December.
Commerce and Consumer Affairs Minister Kris Faafoi said the problems highlighted in both reports were similar, but more extensive in life insurance.
"There are gaps in the regulation of the sector that are exposing consumers and we are going to address them.
"We need a regime where banks and insurers are focused on good outcomes for the consumer and are not conflicted by sales rewards."
Cabinet has agreed to get rid of sales incentives in the insurance industry, Mr Faafoi said.
Incentives, such as overseas trips and loaded upfront commissions, could cause a conflict for the salesperson, he said.
"We have also heard about insurance policies being sold to people who are ineligible for cover, premiums continuing to be charged for a policy that's no longer in effect, and policyholders not being effectively notified of increases in premiums."
The government is planning to release a consultation paper on its proposed changes by May and introduce legislation later this year.
Finance Minister Grant Robertson said while the industry had started to address the concerns raised in the reports, the government still had to act.
It wants to see:
- Clearer duties on banks and insurers to consider a customer's interests and outcomes, and to treat customers fairly.
- An appropriately resourced regulator to monitor the conduct of banks and insurance companies, with strong penalties for breaching duties.
- Changes applied to both banking and insurance since the issues identified in both are similar. There are also overlaps between the sectors, with banks often selling insurance products.
- A response to internal sales incentives and soft commissions.
The Financial Markets Authority is supplying individual feedback to the 16 life insurers reviewed, with a response and action plan on how they will address their issues due back by June 2019.