How Australia’s Royal Commission will impact NZ insurers’ Risk and Compliance
by Paul Murphy
The results of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (‘Australian Banking Royal Commission’) has had wide implications for Risk and Compliance in New Zealand.
This is evidenced by two major developments:
- New Zealand’s planned widespread regulatory changes for banking and insurance.
- Increasing risk control and governance pressure on Australian bank operations in New Zealand.
New Zealand also conducted its own Banking Conduct and Culture Review in 2018, finding some evidence of poor behaviour by banks and insurers.
How The Australian Experience Will Challenge New Zealand’s Insurance Industry
Commissioner Hayne’s 15 recommendations for the Australian insurance industry were mainly designed to eliminate the conflict between duty to customers and self-interest, putting customers’ best interest firmly in front. They included:
- A regulatory limit on insurance product commissions
- A ban on cold-calling to sell insurance products
- Timing restrictions for the sale of ‘add-on’ insurance such as extended warranty
- Changes to definitions of some insurance services to bring them under the financial services regulatory regime
- Introduction of mandatory codes, enforceable provisions and sanctions in the Insurance Code of Practice
While there will not always be exact parallels, we’re seeing New Zealand’s financial regulators taking a close look at how these recommendations could be implemented or backed up with strengthened controls in the local insurance market. Many of Commissioner Hayne’s law reform recommendations are currently being reviewed by the Ministry of Business, Innovation and Employment.
But instead of waiting for it to happen, there are steps that Risk and Compliance Managers should be taking now:
- Seeking more information about processes affecting risk and governance
- Making sure that the information they receive is the right information, which involves asking difficult questions and perhaps challenging the existing approach
- Reassessing priorities to make sure non-financial risks – or compliance issues which Australian experience has demonstrated could quickly turn into financial risks – are taken into account
- Designing better risk analysis and compliance systems
- Using data analytics to assess transactions, monitor results and optimise reporting and controls
- Educating employees, creating appropriate company culture, establishing lines of responsibility for compliance, and holding both managers and customer-facing staff to account
Increased Demand For NZ Risk And Compliance Professionals
Since the Australian Banking Royal Commission made significant regulatory recommendations for the insurance industry as well as banking, the demand for qualified and experienced Risk and Compliance personnel will continue to increase as local insurers brace for the fallout on this side of the Tasman.
One of the results will be a change in the positioning and status of the Risk and Compliance team within insurance businesses. Moving away from process auditing or reactive policing, these professionals will become a more senior, independent and a proactive voice within the organisation. Insurance companies will need larger numbers of highly experienced individuals capable of making themselves heard at board level so that good governance is established from the top down.
More Risk and Compliance committees are likely to be formed to meet the expected challenges and increasingly diverse risks, including emerging risks resulting from technological advances and evolving social and demographic trends as well as the changing regulatory environment. These committees will need to be well resourced, and staffed by seasoned and skilful individuals.
Get Your Risk And Compliance Team Ready For Action
You may need to make some changes in the face of these changes and increased requirements for knowledge and expertise.
Our team at Ensure Recruitment are in constant touch with developments in the insurance sector on both sides of the Tasman. They can help you get the right people on board so that your team can prepare for the demanding future of Risk and Compliance.