The New Zealand insurance industry historically relied on soft regulation until a regulatory framework was introduced by the Insurance (Prudential Supervision) Act 2010. The Insurance Council of New Zealand (ICNZ), which was established in 1895, represents the fire and general insurance industries in New Zealand. Its members include most of the large insurers. They are signatories to the Fair Insurance Code, which sets out the standards of conduct expected of signatories. ICNZ can issue fines against members or cancel their membership. Until October 2016, no significant fines had been imposed.
On October 4 2016 ICNZ announced that – following a disciplinary process for its failure to conduct business in accordance with the Fair Insurance Code and in a "legal, honourable and proper manner" – Youi New Zealand Property Limited must pay the maximum financial penalty of NZ$100,000. The proceeds of the fine will be used to fund initiatives that improve consumers' financial capability and awareness.
The fine is linked to conduct exposed in an article by Diana Clement of the New Zealand Herald, which led to an investigation by the New Zealand Commerce Commission.(1) In August 2016 charges were laid by the commission in accordance with consumer protection legislation, alleging that Youi had used misleading sales techniques when selling policies to consumers looking for quotations, including:
- making false or misleading statements on its website regarding consumers' ability to obtain quotes online;
- making false or misleading statements to consumers that their bank and credit card details were required to provide quotations;
- demanding payment or debiting consumers' bank accounts or credit cards without expressed consent; and
- issuing invoices regarding unsolicited insurance policies and failing to specify to consumers that there was no obligation to pay.
Youi pleaded guilty to the charges and is expected to be sentenced in December 2016. Although a fine of up to NZ$600,000 could be imposed, according to the company's annual financial statement, Youi has made provision to pay a penalty of NZ$350,000 to cover the anticipated fine.
ICNZ found that Youi's business conduct had fallen short of expectation, especially with regards to the effort that ICNZ had put into improving the insurance industry's reputation. It highlighted the significant changes made to the Fair Insurance Code in January 2016 to raise standards and services for consumers.
ICNZ considered the most severe penalty (ie, termination of Youi's ICNZ membership), but instead decided on the severe reprimand of the maximum financial penalty and a warning that a recurrence of the conduct would lead to termination. The decision to impose the financial penalty was driven primarily by the fact that Youi:
- pleaded guilty to the charges laid by the commission;
- accepted that its actions were in breach of its membership obligations; and
- recognised that it had damaged the industry's reputation.
Youi Australia and its parent company OUTsurance Holdings Limited are reported to have faced allegations of similar unethical sales practices. These are being investigated in Australia and South Africa, where there has been bad press and publicity similar to that in New Zealand.
In monetary terms, the fine is less significant than the ICNZ's clear message that it will use the full extent of its powers to protect the insurance industry's reputation and raise the standards and services that insurers provide to consumers. The best way in which the ICNZ can achieve this is to ensure that insurers conduct their business in accordance with the Fair Insurance Code and their associated obligations to consumers to act lawfully and in good faith in all of their dealings.
For further information on this topic please contact Paul Biddle at Jones & Co by telephone (+64 9 601 9600) or email (email@example.com). The Jones & Co website can be accessed at www.jonesandco.nz.
(1) Clement, D (March 7 2016) "Insurance company's sales tactics shocking". New Zealand Herald.
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