The financial services sector is in a time of seismic change, with the last few years marked by significant scrutiny into the industry’s business practice and ethics, both in New Zealand and farther afield. The treatment of consumers and the concept of fair business conduct has come under the microscope. Now, it’s no longer enough for companies to cite their own ethical approach through careful brand communications - intent must be matched with actions.
These discussions have been driven by significant reviews, including the recent final Hayne Commission Report in Australia, whose emotive case studies and extensive analysis described a sometimes flawed approach to customers in the pursuit of profit. In turn, it has now set clear benchmarks for improvement for financial services to work towards. On this side of the Tasman, the New Zealand Financial Markets Authority (FMA) and Reserve Bank (RBNZ) have completed their own conduct and culture reviews, first into banks and then into prominent insurers.
Both reviews passed on specific feedback to the 11 banks and 16 life insurers that were analysed, with the latter given until 30 June 2019 to respond with actionable plans. There’s work to do – in the insurer review, the FMA and RBNZ identified extensive weaknesses in their systems and controls, extending from governance and management right down to front line employees. In some instances, a mismatch between product design and customer needs has increased the risk of long-term conduct issues. Financial conduct isn’t always being regulated sufficiently either, with financial advice sometimes only checked by intermediaries, covering just fractions of insurance policy lifecycle.
At a fundamental level, the recent insurer review is about accountability. It challenges these organisations to take responsibility for their conduct risk from the board right through to the front line, rather than rely on external mediators to highlight issues. After all, responsible conduct is something that should be a part of the fabric and culture of financial services organisations – something that we recently highlighted in our Deloitte New Zealand article series. An emphasis on good consumer care should always be front and centre, demonstrable to both the customer and regulators.
Taking time to make actionable conduct change is beneficial for a number of reasons, and not only to address pressing external scrutiny and boost an insurers’ reputation in the market. It can crucially build long-term customer trust, letting the consumer know that they’re getting fair treatment and have transparency over their commitments from day one. By building transparent and trusting relationships, organisations can also ensure long term sustainability and improved retention of customers. From a legal standpoint, it’s also essential, with improved business conduct ensuring that organisations are adhering to the broader regulatory framework.
So what practical steps can insurers take? First, they need to identify their plans for FMA and RBNZ’s June deadline, which can involve performing a culture assessment and engaging with regulators to develop a new working relationship. As mentioned in our Conduct article series, data can be harnessed to dig deep into where insurers may be missing the mark in serving their customers, and it’s crucial that they understand the full range of their customers, including the vulnerable ones.
For extensive change, business conduct transformation can be distilled into 11 clear areas that insurers must focus on to improve their own conduct and reduce risk. Those are:
How Deloitte can help
Our team can support you and your organisation in your conduct and risk culture journey through:
Find out more and visit our Risk Advisory section at Deloitte New Zealand.
In today’s ever-changing world, managing risk and regulatory compliance is often complex and requires organisations to understand their business in a number of different lenses. I am passionate about helping clients navigate through each of these challenges by assisting them to change their operations and ultimately gain a competitive advantage. I have deep experience in the Financial Services sector, including regulatory compliance, data risk, credit risk, liquidity risk, technology risk advisory, internal audit and risk operating models.
Catherine is a partner in our Risk Advisory team with over 30 years practitioner and advisory experience in the banking sector in New Zealand and the United Kingdom. She is the national leader of our FSI Risk and Regulatory team and specialises in providing strategic enterprise risk management advice (e.g. 3LOD, governance and assurance, digital/technology risk) as well as regulatory and operational risk services to clients. Her experience also includes implementing regulatory transformation programmes, remediation programmes, the development of regulatory risk management governance models and frameworks and attestation and director due diligence obligations in relation to AML, BS11, CCCFA, FSLAA/B and COFI.