New Zealanders unconvinced insurers have their interests at heart, Consumer NZ study shows

Sunday, 23 June 2019

John and Raewyn Waldron's house is immaculate - so why won't insurers touch it?

New Zealanders are paying increasing amounts for insurance but do not think they are getting a good deal, new research from Consumer NZ shows.

The industry has been under the spotlight lately. House and contents insurers are increasingly moving to risk-based pricing, charging more for houses that are prone to earthquakes or flooding.

Poor conduct in the life insurance market have been highlighted by a Reserve Bank and Financial Markets Authority report, which suggested that consumers' best interests were sometimes secondary to shareholders'.

The Government is also reviewing insurance contract law to ensure that it is still fit for purpose.

* Lobbying heats up on best ways to fix banks and life insurers

* Editorial: Overcharged Kiwis are none the wiser after insurance review**

Consumer NZ chief executive Sue Chetwin said her research also showed significant problems, including a high level of complaints and low levels of trust.

'Just 13 per cent of consumers were confident they could trust insurers to give them good advice. Many were unsure about the cover provided by their insurance policy and what they were getting for their money. Only 18 per cent felt they fully understood the terms of their policies,' she said.

Only 8 per cent thought their insurer always offered fair terms.

We need insurance to cover ourselves against disaster, but New Zealanders are convinced it's a good deal.

A quarter had had a problem with an insurer.

The top cause of complaint was having had a claim unreasonably denied.

Chetwin said insurers had wide-ranging rights to decline a claim if they decided a customer hadn't told them something they considered material, regardless of whether the customer knew they needed to disclose this information.

'In other countries, consumer protection laws prevent insurers from unreasonably refusing a claim in cases of innocent or accidental non-disclosure. But that's yet to happen here, which means Kiwis are more likely to have claims declined,' she said.

Data from the Insurance Council, which covers general insurers, showed that there was $6.32 billion in gross premiums paid in New Zealand in the year to September 2018, compared to $5.7b the year before. They had a loss ratio of just under 60 per cent in that year.

Consumer NZ chief executive Sue Chetwin said her research showed significant problems, including a high level of complaints and low levels of trust.

The Financial Services Council, which covers life insurers, said there were $2.62 billion in annual premiums in force in the March quarter, compared to $2.53 billion the year before.

The survey found people who bought insurance through an adviser or broker were more likely to think they had a bad deal.

They were significantly less likely to be satisfied with the service they got compared with those who bought direct from an insurance company.

Chetwin said this difference was most evident among consumers who'd bought life insurance.

Just 28 per cent of those who got their life insurance from a broker were happy with the service provided, compared with 44 per cent who bought direct from an insurance company.

But a significant proportion of consumers said it was difficult to compare companies and policies in all types of insurance.

'Life insurance brokers get paid on commission, which can be as high as 200 per cent of the premium. Commission-based selling comes with a huge risk the broker will put their earnings ahead of what's right for their customer. The results of our research suggest selling insurance this way is leading to poorer outcomes for consumers.'

A new regime for financial advice will take effect next June, which introduces new conduct obligations for insurance advisers who are currently operating as registered financial advisers.

The Government has also asked, as part of its contracts law review, whether commission structures needed Government intervention to change. Australia has introduced caps for adviser commission. Chetwin said banning commission entirely would tackle the conflict of interest that remuneration structure created.

Consumer NZ said insurers should have to provide a one-page policy summary to make it easier for consumers to understand. Insurance should be subject to the Fair Trading Act's ban on unfair terms, Chetwin said. Insurers should also not be able to decline a claim when a customer accidentally or innocently did not disclose information, and should be required to provide clear information about costs and premium increases.

Complaints schemes should 'name and shame' companies that were not acting fairly, she said.