Additional conduct obligations may be imposed on New Zealand’s life insurers after a disappointing industry response to the regulators’ conduct and culture review.

The Reserve Bank of New Zealand (RBNZ) and the Financial Markets Authority (FMA) asked 16 life insurers to outline the steps they would take to improve their existing conduct risk processes and address the findings of a review conducted last year.

That review revealed what the regulators say was extensive weaknesses in life insurers’ systems and controls, weak governance of conduct risks and a lack of focus on good customer outcomes – compounded by insurers’ belief they are not responsible for outcomes caused by the poor behaviour of advisers who sell products.

The review also found little evidence of products being designed and sold with good customer outcomes in mind, and hardly any policy for dealing with vulnerable customers.

FMA CEO Rob Everett says the poor response confirms what the regulator found in the original review.

“It’s clear that progress has been slow and not as far-reaching as required,” he said. “Some providers have started work to identify the customer and conduct issues they face; others have not provided any detail on this.”

Some insurers didn’t conduct a systematic review of policyholders and products, while others didn’t provide data on policyholders affected, or the cost of remediation.

Insurers who completed the exercise found overcharging of premiums, out of date benefits, overlooking of eligibility criteria, poor post sale communications and poor-value products.

Not all insurers have committed to removing or altering concerning indirect sales incentives, the regulators say. Providers using external advisers have told regulators that changing “long held business arrangements” and distribution models is difficult and will take time.

Insurers that haven’t undergone a systematic review of policyholders and products have been asked to do a further review and develop responsive plans by December.

NZRB Governor Adrian Orr says the sector wasn’t demonstrating the necessary urgency and prioritisation to make changes to monitor conduct risk.

“The sector has a weak appetite for change,” the FMA and RBNZ say.

“Deficiencies in some of the plans received, and some insurers’ lack of commitment to implementing the regulators’ recommendations, further demonstrates the need for additional obligations to be included in the regulation of conduct of life insurers.”