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The new law comes into force November 2027 at the latest – that seems like a fair way off, but is it?
Law firms have written extensively about the potential implications for insurers suggesting that many insurers and insurance intermediaries will have to make wide-ranging changes to their processes and procedures.
There seems little doubt that considerable work will be required to make the necessary changes to policy wordings and processes to accommodate the changes in the first instance.
In terms of products and policy wordings, of note is a supporting amendment to the Financial Markets Conduct Act 2013 447A “Insurer must ensure contract is worded and presented in clear, concise, and effective manner”. Further, an insurer must “have regard to whether the wording and presentation of the contract assist consumers to understand their rights and obligations under the contract.”
This is very much aligned with obligations insurers have under The Conduct of Financial Institutions Act 2019 (CoFI) to communicate with consumers about services and products in a timely, clear, concise, and effective manner. So, depending on how far and to what extent insurers have already made headway in this space to meet this minimum requirement of a Fair Conduct Programme, there may now be either “just” a lot of work to do, or a huge amount of work to do.
Getting policy wordings reviewed to meet this, now even more explicit, expectation is of course just the start of a change process. When client-facing documents change, so too do staff and intermediary training requirements, processes, systems, controls… the list goes on.
In addition to the change in policy document wording, the shift in disclosure onus that results in insurers being much less able to rely on generic requests for information may, subject to the risk appetite of the insurer and the current detail on underwriting questions, have implications for client underwriting questionnaires. Insurers will need to ensure that questions asked are sufficiently specific, detailed and clear to get the information required for the insurer to make a prudent risk assessment. Any changes in this area will also flow to training, processes, systems, controls.
Depending on the nature of changes in customer applications and underwriting processes, claims processes may also require review, although the industry seems to do a very good job in resolving claims in a reasonable period (noting that “reasonable” does not have a specified timeframe, what is reasonable will depend on a range of relevant circumstances).
At Mosaic we have supported banks, insurers and non-banks deposit takers of all shapes and sizes to prepare them to meet CoFI requirements. Those engagements spanned gap analysis, programme leadership, programme implementation including Fair Conduct Programme development, readiness assessments and other support to meet licencing requirements.
We expect many insurers, understandably, have been pushing hard to get over the line with CoFI. Depending on how far they have already pushed relative to expectations re “clear, concise and effective” policy documents, and fair conduct more broadly, responding to the Contracts of Insurance Act requirements may or may not represent another significant uplift challenge (and opportunity).
If we at Mosaic have learned anything from our CoFI work, it is that three years is not a long time when large complex organisations need to make significant change (particularly when grappling with principles-based legislation), or for smaller organisations with limited resources to respond.
As is often the case, firms are faced with a decision whether to respond with a focus on achieving “compliance” or something more aspirational, let’s call that “compliance plus”, the latter involving leveraging new regulatory expectations to initiate or accelerate what they may already be implementing (or considering) as a transformational or strategic initiative(s).
Taking a stocktake to assess where you stand now and deciding early, will help avoid the risk of a mad scramble later. Our top tip is if you start early, plan well and continue to adapt and flex (in a structured systematised way) then November 2027 won’t be an “all-hands-on deck” experience.
As insurers and insurance intermediaries face this, we would welcome the opportunity to talk with you about how work might be practically structured and right sized to build upon the foundations laid, in the case of insurers with CoFI programmes, and ensure you are prepared to meet these new requirements.
