IAG NZ feels the pinch of increased regulation

AIG claims about 47 per cent of the market across its insurance brands. Photo / Getty Images

Insurance Australia Group's New Zealand division faced increased costs as the sector comes under more intense regulatory scrutiny but said it hasn't found any customer issues that need fixing.

The insurer is New Zealand's largest, claiming about 47 percent of the market across its NZI, AMI, State and Lumley brands. IAG's first-half accounts showed its New Zealand underwriting expenses were largely flat at A$99 million in the six months ended Dec. 31, largely because it was able to manage its costs closely to offset a greater compliance and regulatory burden.

General insurers – which typically provide home, contents and vehicle coverage – last year avoided the harsh criticism levelled at life insurers by a joint Financial Markets Authority and Reserve Bank review into the culture and conduct of those major firms.

However, they're now facing greater regulatory scrutiny, and RBNZ governor Adrian Orr warned general insurers last year to review their own systems.

"IAG New Zealand has been undertaking a review of our culture and conduct. That work has included the reviews required of all insurers and banks by the Reserve Bank of New Zealand and the Financial Markets Authority. We have not identified any area requiring an allocation of funds for remediation," a spokesperson said in an email.

The Australian insurer noted a series of regulatory reforms under way in New Zealand. However, it said it expected to maintain strong underlying profitability by closely managing its costs against a backdrop of moderate premium growth.

Earlier this week, rival Suncorp Group said its New Zealand division had set aside $8 million to cover remediation costs for its general insurance unit.

The Financial Markets Authority welcomed the Suncorp disclosure but said there were likely more conduct issues lurking in the sector.

"While it is pleasing to see that the industry is starting to undertake this analysis and provide us notifications, we have suggested that we may only have seen the tip of the iceberg in terms of items requiring remediation," a spokesperson said in an email.

Jessica Wilson, Consumer NZ head of research, said Suncorp's self-disclosure was a tentative sign that insurers are becoming aware of that greater scrutiny. However, regulators still needed to look at the broader general insurance market.

"There's nothing we've seen to show it should be exempt from scrutiny. Despite insurance being a significant financial product, there's been little oversight of the market to date," she said.

"The industry has only recently started to attract the attention of regulators. That attention is likely to prompt at least some companies to take a closer look at their own conduct, even if it's only to avoid being caught out later on."

Following the review of life insurers, the RBNZ and the FMA asked general and health insurers to perform a systematic review of products and policyholder groups, then produce a conduct and culture plan for their boards of directors.

The FMA said there was no immediate plan to conduct onsite reviews of general insurers as it had done with life insurers.

There are currently no conduct obligations for general insurers, but a bill has been introduced to Parliament which proposes introducing obligations for fair treatment of insurance customers.

Yesterday's accounts showed IAG's New Zealand division reported a profit of A$156 million in the six months ended Dec. 31, from A$193 million last year. While gross written premium rose 6.3 per cent to A$1.35 billion, a major hailstorm in November pushed up the value of claims 18 per cent to A$485 million.

IAG's group profit fell 43.4 per cent to A$283 million due to increased trans-Tasman claims and remediation costs to refund customers in Australia where discounts weren't always applied in full.

- BusinessDesk