ASIC says Australian financial services (AFS) licence holder ClearView Financial Advice Pty Ltd (ClearView) has completed a review and remediation program for over 200 clients who received poor life insurance advice.
Under this program, ClearView reviewed 4,269 advice files from 279 of
its advisers and remediated clients who had suffered loss. 215 clients
were offered $730,138 in financial compensation and 21 clients received
non-financial remediation through reissued advice documents and fee
disclosure.
ASIC first identified issues of non-compliant advice by ClearView’s
representatives during an industry-wide review of retail life insurance
in 2014 (14-263MR).
A sample review of ClearView’s advice files highlighted broad areas
of concern such as inadequate needs analysis for client, insufficient
explanation about the pros and cons of using superannuation to fund
insurance premiums, inadequate consideration of premium affordability
issues and poor disclosure about replacement products. ASIC raised these
issues as well as some concerns related to the conduct of Jason
Churchill, one of ClearView’s advisers at the time.
In 2016, ASIC accepted an enforceable undertaking (EU) from Mr
Churchill for failure to meet his obligations as a financial adviser (16-008MR).
Under the EU, Mr Churchill agreed to undergo additional training,
adhere to strict supervision requirements and have each piece of advice
audited by his authorising licensee before it was provided to clients.
Separately, ClearView undertook to review advice previously provided by
Mr Churchill and remediate clients who had received inappropriate
advice.
ClearView also began a review of the personal insurance advice
provided by its advisers to determine if there was a systemic issue
related to the broad areas of concern identified by ASIC and engaged
Deloitte to provide independent oversight. This review found that a
number of ClearView’s advisers did not undertake adequate ‘needs
analysis’ for clients.
The needs analysis is a critical part of the financial advice
process. It enables advisers to understand their clients’ financial
situation, needs and objectives, and provides the basis for the
financial advice.
To identify all instances of this issue and to remediate any
adversely affected clients, ClearView undertook a full review and
remediation program in accordance with Regulatory Guide 256: Client review and remediation conducted by advice licensees
(RG 256). Deloitte oversaw the review and remediation program to
ensure that it was conducted in accordance with the principles set out
in RG 256.
We ran our September 2019 live event last night with strong participation from our audience. During the show we discussed our updated scenarios (based on a starting point of August 2018) and answered a range of questions on property and finance.
The edited edition of the show is available to view in replay. This excludes the pre-show and live chat, but does include some behind the scene glimpses.
Our scenarios present a range of alternative outcomes, looking 2-3 years out. “Business As Usual” is based on the RBA’s view, with some tweaks – as we do not believe unemployment will fall to their target of 4.5%! Here there is a path to higher home prices, though with falls later as the current “recovery” reverses.
“Things Can Only Get Better” – is our view of the fading local economy without significant international economic disruption, with unemployment rising, as retail and construction slows, countered by additional Government intervention within their “surplus” limits. Here home prices fall once again.
“Not Yet Doomsday” is our scenario where international economic conditions deteriorate (China, US, Brexit Etc…) as global growth slows. This has a significant impact on the local economy and the spillover effects drive the Australian economy into recession. As liquidity pressures emerge one bank will need assistance.
“Armageddon” is where we get a GFC 2.0 type event, with global liquidity under pressure, and banks needing to be rescued by either bailing in or bailing out. The spillover impacts will be significant (as once again tax payers or households end up picking up the tab. More QE will follow.
Finally “Doomsday” would be the case where Central Banks and Governments allow banks to fail, with all the knock-on consequences.
As well as estimating the impact on unemployment and home prices we also weight the probability of each outcome. This is updated each month as new information arrives via our Core Market Model.
The original live stream recording is also available, with the show commencing at 30 mins in to allow for the live chat replay.
More on the Cash Restriction Bill with Robbie Barwick from the CEC.
The Liberal/Nationals joint party room agreed to support the bill, despite the 4,000 or so public submissions not posted by Treasury, and the details of the bill yet to be released. Democracy at work?
Use and share these links for finding MPs and Senators.
Click the link, and find the heading State/Territory in the box titled Refine Search on the right hand side of the page. Click on your state and call as many MPs and Senators as you can, on their Parliament House numbers, starting with 02-6.
The ABS released their price data series to end June, so late as to be little more than a historical artifact, given the rate cuts, APRA changes and other events. Since June the kitchen sink has been thrown to try to force prices higher, though lead indicators are weakening again now. The total value of Australia’s 10.3 million residential dwellings fell by $17.6 billion to $6,610.6 billion in the June quarter 2019.
Residential property prices fell 0.7 per cent in the June quarter 2019, according to figures released today by the Australian Bureau of Statistics (ABS).
The falls in property prices were led by the Melbourne (-0.8 per cent) and Sydney (-0.5 per cent) property markets. All capital cities apart from Hobart (+0.5 per cent) and Canberra (+0.2 per cent) recorded falls in property prices in the June quarter 2019.
ABS Chief Economist Bruce Hockman said, “The falls in Melbourne were driven by detached dwellings, while attached dwellings drove the fall in Sydney”.
Through the year, residential property prices fell 7.4 per cent in the June quarter 2019. Prices fell 9.6 per cent in Sydney and 9.3 per cent in Melbourne. Hobart (+2.0 per cent) was the only capital city to record positive through the year growth.
“Sydney and Melbourne housing markets have seen residential property price falls moderate this quarter. A number of housing market indicators, such as auction volumes and clearance rates, have begun to show signs of improvement, though they remain below the levels seen one year earlier”, said Mr Hockman.
The total value of Australia’s 10.3 million residential dwellings fell by $17.6 billion to $6,610.6 billion in the June quarter 2019. The mean price of dwellings in Australia is now $638,900. The total value of residential dwellings has fallen for five consecutive quarters, down from $6,957.2 billion in the March quarter 2018.
The RBA released their minutes today. Clear talk of more cuts, against a weaker global scene. But holding on to households spending more as the housing sector wakens. Rates will be lower for longer as Central Banks globally cut to the max. Saved somewhat by Government spending and higher iron ore price, but small businesses not borrowing, and households not spending.
International Economic Conditions
Members commenced their discussion of the global economy by noting that business conditions in the
manufacturing sectors in many economies had remained subdued. They discussed the escalation of the
US–China trade and technology disputes, which had intensified the downside risks to the global
outlook. By contrast, conditions in more domestically focused sectors had generally continued to be
resilient, supported by ongoing strength in labour markets. Employment growth had remained robust in the
major advanced economies, although it had eased a little in some economies in recent months, and
unemployment rates had remained low. Although wages growth had picked up, year-ended inflation had
remained below target in the major advanced economies. Members noted that inflation in the United States
had increased in recent months.
The main development over the previous month had been the escalation of the US–China trade and
technology disputes. The United States had announced higher tariffs on most imports from China,
including consumer goods that had not previously been subject to the tariff increases, to take effect
over the remainder of 2019. Members noted that recent and prospective increases in tariffs could
increase consumer price inflation in the United States by between ¼ and ½ percentage
point over the following few years, based on a range of published estimates. In response to the US
announcements, China had suspended purchases of US agricultural products and had announced plans to
increase tariffs on around one-half of the value of US imports. In value terms, US exports to China
had contracted by around 20 per cent over the year to June, while US imports from China
had been around 3 per cent lower. Members also noted that some other east Asian economies were
benefiting from the diversion of US imports away from China.
More generally, global trade volumes had fallen over the previous year, reflecting both the escalation
of trade tensions and slower growth in Chinese domestic demand. Weak external demand had been reflected
in slowing growth in global industrial production and below-average conditions in the global
manufacturing sector. Recent indicators suggested trade-related activity would remain weak for some
time.
Members noted that weak external demand and heightened geopolitical uncertainty had contributed to
lower growth in business investment in many economies, including the United States, the euro area and
the United Kingdom. These economies had also recorded declines in investment intentions. By contrast, in
the United States the household sector had been resilient, but overall GDP growth had slowed in the June
quarter. GDP growth had also slowed in most euro area countries in the June quarter; Germany had
recorded a small contraction in GDP. By contrast, GDP growth in Japan had been moderate, supported by
consumption brought forward ahead of a scheduled increase in the consumption tax in October, as well as
ongoing growth in investment, bolstered by the need to address labour shortages.
Recent data suggested that growth in China had eased further. Most indicators of economic activity had
slowed in July, including in components being supported by recent policy measures, such as
infrastructure investment. The level of steel production had declined slightly. Retail sales growth had
resumed its downward trend, after having received a boost from strong growth in car sales in recent
months ahead of tighter emission standards coming into effect. In India, recent indicators had also
pointed to output growth slowing.
Weak global trade had continued to weigh on growth in east Asia. Trade within the region and with China
had contracted further in June. Growth in industrial production and survey measures of manufacturing
conditions had remained weak. Political unrest had weighed on economic conditions for businesses and
households in Hong Kong, while an ongoing dispute with Japan had disrupted South Korean production of
electronics. However, domestic demand elsewhere in the region had held up, supported by government
policies in some cases.
Iron ore prices had declined since the previous meeting, but were around 40 per cent higher
than a year earlier. Market reports had attributed these declines to a number of factors, including
concerns about the outlook for steel demand in China following the escalation of the disputes between
the United States and China in early August, lower steel prices and an easing in supply concerns. The
prices of coal and rural commodities had been somewhat lower over the prior month, while oil and base
metals prices had been little changed, except where there had been disruptions to the supply of specific
metals.
Domestic Economic Conditions
The main information on the domestic economy received since the previous meeting had been on the labour
market as well as partial indicators of output growth in the June quarter in the lead-up to the
publication of the national accounts. Quarterly GDP growth was expected to be around
½ per cent, supported by a strong recovery in resource exports from earlier supply
disruptions.
The ABS capital expenditure (Capex) survey suggested that mining investment had grown in the June
quarter, driven by an increase in machinery & equipment investment. The Capex survey suggested there
had also been an increase in machinery & equipment investment by the non-mining sector in the June
quarter, while non-residential construction was expected to have declined. Investment intentions for
2019/20 had been positive for the mining sector, but had been modestly
lower for the non-mining sector. Members noted that the outlook for the construction sector was
particularly weak.
Members recognised that, overall, Australian businesses had not appeared to have been affected by the
weak trade environment to the same extent as businesses in other advanced economies. This was partly
because Australia’s exports are more exposed to Chinese domestic demand and less integrated in
global supply chains.
Consumption growth was expected to have remained low in the June quarter. Retail sales volumes had been
weak in the June quarter and the value of retail sales had fallen in July. The low- and middle-income
tax offset (LMITO) was expected to boost household income, and thus support consumption growth, in
coming quarters. However, the Bank’s liaison with retailers suggested that this had yet to lift
spending noticeably. Members noted that even if the LMITO was used to pay off debts, this would still
bring forward the point at which households could increase their spending.
Established housing market conditions had steadied in recent months. Reported housing prices in Sydney
and Melbourne had risen noticeably in August and auction clearance rates had increased further, although
volumes had remained low. Housing market conditions had been subdued elsewhere, although there were
signs of housing prices stabilising in Brisbane. Housing turnover had remained low. Consequently,
spending on home furnishings and other housing-related items was not expected to contribute to
consumption growth in the near term. Indicators suggested that dwelling investment had declined further
in the June quarter and indicators of earlier stages of residential building activity had remained weak;
building approvals had declined further in June and other measures of early-stage activity and buyer
interest had remained at low levels.
Employment growth had remained strong in July, but the unemployment rate had remained at
5.2 per cent. Employment growth over preceding months had been broadly based across states and
had predominantly been in full-time work. Strong employment growth had been accompanied by a further
increase in the participation rate, which had recorded another all-time high. Members noted that the
increase in participation had been particularly notable for New South Wales. Forward-looking indicators
had continued to suggest that employment growth would moderate over the following six months.
Information from liaison suggested employment intentions had remained weak in the residential
construction sector but positive among services firms.
Wages growth had remained low and the upward trend in wages growth appeared to have stalled. The wage
price index had increased by 2.3 per cent over the year to the June quarter. Private sector
wages growth had been unchanged in the quarter, while public sector wages growth had been a little
higher. Most of this increase had been the result of a one-off adjustment to equalise the wages of
nurses and midwives in Victoria with those in New South Wales.
Financial Markets
Members commenced their discussion of financial markets by noting that government bond yields had
declined and were at record lows in many countries, including Australia. Volatility and risk premiums in
global financial markets had increased in August, following the escalation of the disputes between the
United States and China and disappointing economic data releases in Germany and China. The persistent
downside risks to the global economy, combined with subdued inflation, had led a number of central banks
to reduce interest rates in recent months and further monetary easing was widely expected.
In the United States, market pricing implied that the federal funds rate was expected to decline by
around 100 basis points over the following year. Market participants also expected the European
Central Bank to provide additional monetary stimulus in the near term, including renewed asset purchases
and a reduction in its policy rate further into negative territory. Central banks in a number of other
advanced economies had also eased policy, or signalled that they were prepared to do so, in response to
subdued inflation, moderating activity and downside risks to growth. For similar reasons, central banks
in emerging markets had also been easing policy over recent months and had signalled the possibility of
further easing.
Financial conditions for corporations remained accommodative globally. This reflected market
participants’ ongoing expectations that central banks were likely to deliver further monetary
easing to sustain the global economic expansion. Corporate bond spreads had increased a little in
August, but remained low. Equity prices had declined somewhat, reflecting concerns about the outlook for
growth, but remained substantially higher over the year to date. In Australia, equity prices were
5 per cent below the record high reached in late July. Australian listed companies’
profits had risen, driven by the resources sector. At the aggregate level, companies had increased their
dividends over the preceding year, although this reflected higher dividends in the resources sector in
particular.
In China, the authorities had intervened to support three small banks in preceding months, and the
People’s Bank of China had continued to maintain a high level of liquidity in the banking system.
While funding conditions for smaller banks had tightened this year, money market rates and corporate and
government bond yields in China had generally remained low and market participants were expecting
further easing in monetary policy in the period ahead.
In foreign exchange markets, the Chinese renminbi had depreciated against the US dollar in August
following the escalation of the US–China disputes, while the Japanese yen had appreciated over
the month. The Australian dollar had been little changed at around its lowest level in some years.
In Australia, borrowing rates for both businesses and households were at historically low levels, as
were banks’ funding costs. Variable mortgage rates had declined broadly in line with the reductions
in the cash rate in June and July. Fixed mortgage rates had also declined substantially over the
preceding six months. Financial market pricing continued to imply that the cash rate was expected to be
lowered by another 25 basis points by November 2019, with a further cut expected in the early part
of 2020.
Growth in housing credit had been little changed over the year to July, having declined steadily
through 2018. Credit to investors had declined slightly over previous months. Meanwhile, housing loan
approvals to both owner-occupiers and investors had increased for the second consecutive month in July.
This pick-up in loan approvals had followed a significant decline over the preceding two years and was
consistent with the signs of stabilisation in the established housing market. Borrowing by large
businesses had continued to grow at a relatively strong pace. In contrast, small businesses’ access
to finance remained difficult, and had become more difficult over the preceding year as banks had
tightened their lending practices. While new sources of non-traditional finance had been growing,
including equity funding from family offices and private equity funds, they remained a small share of
business funding.
Members had a detailed discussion of the ways in which financial conditions abroad affect Australia.
They discussed how shifts in world interest rates and global risk premiums flow through to domestic
financial conditions. While Australia’s floating exchange rate means that monetary policy can be
set largely according to domestic considerations, members discussed the large shifts in
savings/investment decisions globally, which were affecting the level of interest rates everywhere,
including in Australia. Members also noted the critical role that the exchange rate had played over many
years as a shock absorber for the Australian economy. One important factor here has been that Australian
entities raising offshore funding are able to do so in Australian dollars, either directly or via
hedging markets.
Considerations for Monetary Policy
Turning to the policy decision, members observed that the news on the international economy had
confirmed that the risks to the global growth outlook were to the downside. The trade disputes between
the United States and China had escalated and growth in China had continued to slow. There had been
further indications that these developments were affecting trade and investment decisions in overseas
economies, although businesses had continued hiring and labour market conditions had remained
tight.
Against this backdrop and with ongoing low inflation, a number of central banks had reduced interest
rates over recent months and further monetary easing was widely expected. Long-term government bond
yields had declined and were at record lows in many countries, including Australia. Borrowing rates for
both businesses and households were also at historically low levels, and the Australian dollar exchange
rate was at the lowest level that it had been in recent times.
Domestically, members considered a number of developments over preceding months that had a bearing on
the monetary policy decision. First, employment had continued to grow strongly and the participation
rate was at a record high. However, the unemployment rate had remained steady at around
5.2 per cent over recent months. At the same time, wages growth had remained low and there
were few indications that wage pressures were building. Members noted that a further gradual lift in
wages growth would be a welcome development. Taken together, recent outcomes suggested that spare
capacity remained in the labour market and that the Australian economy could sustain lower rates of
unemployment and underemployment.
Second, there had been further signs of a turnaround in established housing markets, especially in
Sydney and Melbourne, although housing turnover had remained low. Housing credit growth had remained
subdued, although mortgage rates were at record low levels and there was strong competition for
borrowers of high credit quality. Data on residential building approvals and information from the
Bank’s liaison program suggested that there was likely to be further weakness in dwelling
investment in the near term; members recognised that this could sow the seeds of an upswing in the
housing price cycle at some point, particularly given the lengthy stages in the construction of
higher-density residential housing. Demand for credit by investors continued to be subdued and credit
conditions, especially for small and medium-sized businesses, remained tight.
Finally, based on partial indicators, GDP growth in the June quarter was expected to have been around
½ per cent. The largest contributions to growth were expected to have been from exports
and public demand. Private final demand, which includes consumption, business investment and dwelling
investment, was expected to have been weak.
Looking forward, the outlook for output growth was being supported by the low level of interest rates,
recent tax cuts, signs of stabilisation in some established housing markets and a brighter outlook for
the resources sector. A key uncertainty continued to be the outlook for consumption growth, which was
expected to increase over time, supported by a gradual pick-up in growth in household disposable income
and improvements in conditions in the housing market. Inflation pressures remained subdued, but
inflation was expected to increase gradually to be a little above 2 per cent over 2021 as
output growth picked up and the labour market tightened.
Based on the information available, members judged that it was reasonable to expect that an extended
period of low interest rates would be required in Australia to make sustained progress towards full
employment and achieve more assured progress towards the inflation target. Members would assess
developments in both the international and domestic economies, including labour market conditions, and
would ease monetary policy further if needed to support sustainable growth in the economy and the
achievement of the inflation target over time.
The Decision
The Board decided to leave the cash rate unchanged at 1.00 per cent.
The REINZ published their August 2019 report, which says the number of residential properties sold across New Zealand in August decreased by -6.1% from the same time last year to 5,959 (down from 6,346), the lowest level of sales for 7 months.
For New Zealand excluding Auckland, the number of properties sold decreased by -6.9% when compared to the same time last year (to 4,198 down from 4,509).
In Auckland, the number of properties sold in August decreased by -4.1% year-on-year (to 1,761 down from 1,837) the lowest in 4 months.
Breaking this down showed volumes actually only fell in Auckland City (-14.0%), North Shore City (-13.0%) and Manukau City (-5.4%). Whereas they increased by 43.0% in Papakura District, 16.2% in Franklin District, 13.8% in Rodney District and 0.4% in Waitakere City showing how mixed the Auckland region is.
Median house prices across New Zealand increased by 5.5% in August to $580,000, up from $550,000 in August 2018. These results are in line with the REINZ House Price Index (HPI) which saw property values increase 2.9% annually.
Median price increases for New Zealand excluding Auckland were even stronger, increasing by 9.5% to new record high of $498,000, up from $455,000 in August last year.
Median house prices in Auckland fell by -3.5% to $820,000 – down from $850,000 at the same time last year.
Here are the un-adjusted movements over the past month, sorted by price changes.
And here are the same compared with 12 months ago.
In August the median number of days to sell a property nationally increased by 2 days from 37 to 39 when compared to August last year. However, this was down 1 day on last month’s figure of 40 days.
For New Zealand excluding Auckland, the median days to sell increased by 2 days from 35 to 37.
Auckland also saw the median number of days to sell a property increase by 2 days from 42 to 44 when compared to the same time last year.
Australian prime home loan arrears fell in July in all states except NSW and South Australia, but they remain above their five-year average, new data from Standard & Poor’s has shown, via The Adviser.
The Standard & Poor’s Performance Index (SPIN) for Australian prime mortgages dropped to 1.49 per cent in July 2019, down from 1.51 per cent a month earlier, S&P Global Ratings’ recent RMBS Arrears Statistics: Australia report showed.
According to the data, which measures
the weighted average of residential mortgage loans that are more than
30 days past due in publicly and privately rated Australian RMBS
transactions, prime arrears typically drop in spring and are expected to
decline during the third quarter of the year.
However, while the arrears index dropped month-on-month, the data showed that arrears were 11 basis points higher than they were in July 2018 and remain above their five-year average of 1.25 per cent.
Looking at arrears on a national
level, arrears improved in six states and territories, with NSW and
South Australia showing an uptick in arrears.
NSW saw an increase to 1.29 per cent, while South Australia saw arrears rise to 1.54 per cent in July 2019.
Western Australia recorded the largest drop in arrears during July, with the rate decreasing 14 basis points to 2.91 per cent.
According to S&P, the majority of
this improvement was for loans 30-60 days in arrears. Loans more than
90 days in arrears, however, continued to increase in the western state.
Owner-occupier arrears improved in July, falling by 3 basis points to 1.71 per cent.
However, investor arrears remained mostly unchanged in July, falling by 1 basis point to 1.46 per cent from the previous month.
According to S&P, this partly reflects the “generally tighter lending conditions for investors in the current environment”.
“We expect arrears to continue to
decline as the recent rate cuts filter through. These improvements are
likely to be seen in the earlier arrears categories, which are more
sensitive to interest-rate movements. We expect longer-dated arrears to
remain elevated in a softer economic environment,” S&P analysts
stated.
“Recent rises in housing finance
approvals could bolster refinancing conditions, which started to improve
in July, rising 5.4 per cent in seasonally adjusted terms. This will
help to stabilize arrears and prepayment rates if the current momentum
continues because refinancing is a common way for borrowers to
self-manage their way out of arrears.”
RBA on the rising arrears rate
The level of mortgages past due has been noted in recent months, with the Reserve Bank of Australia’s head of financial stability, Jonathan Kearns, noting in June
that the number of people in arrears on their home loans had reached
the highest level recorded since the global financial crisis.
In an address to the 2019 Property
Leaders’ Summit in Australia in June, Mr Kearns discussed the factors
contributing to the continual rise in home loan arrears.
Mr Kearns claimed that “cyclical
upswings” in arrears were attributable to weak economic conditions,
which include falling or stagnant wages and softness in the housing
market – which may inhibit some borrowers from selling their property to
ease their mortgage burden.
The head of financial stability also
acknowledged that tighter lending standards can conversely impact a
borrower’s ability to meet their mortgage repayments, pointing to
previous restrictions on interest-only lending, which prevented
borrowers from rolling over the interest-only period.
Mr Kearns also conceded that tighter serviceability measures may prevent distressed borrowers from refinancing their loan, cited by S&P as one of the factors contributing to the rise in delinquencies.
However, Mr Kearns pointed to
internal data collected by the Reserve Bank, which suggested that the
application of tighter lending standards has been “effective” in
improving credit quality.
Mr Kearns said at the time that he expected the overall arrears rate to continue rising, but he claimed the trend would not pose a significant threat to financial stability.
“To the extent that we can point to
drivers of the rise in arrears, while the economic outlook remains
reasonable and household income growth is expected to pick up, the
influence of at least some other drivers may not reverse course sharply
in the near future, and so the arrears rate could continue to edge
higher for a bit longer,” he said.
“But with overall strong lending
standards, so long as unemployment remains low, arrears rates should not
rise to levels that pose a risk to the financial system or cause great
harm to the household sector.”
The Reserve Bank of New Zealand (RBNZ) and Financial Markets
Authority (FMA) today released their findings on life insurers’ responses to
the joint Conduct and Culture Review.
Overall, the regulators were
disappointed by the responses. Significant work is still needed to address the
issues of weak governance and ineffective management of conduct risk,
identified in the regulators’ report earlier this year.
Rob Everett, FMA Chief
Executive, said: “While we’re disappointed, we’re not surprised as the
responses confirm what we found in our original review. It’s clear that
progress has been slow and not as far-reaching as required.
Some providers have started
work to identify the customer and conduct issues they face, others have not
provided any detail on this.”
Sixteen life insurers were
asked to provide work plans outlining the steps they will take to improve their
existing processes and address the regulators’ findings and recommendations.
There was wide variance in
the comprehensiveness and maturity of the plans provided.
Adrian Orr, Reserve Bank
Governor, said, “We’re disappointed the industry’s response has been
underwhelming. The sector has failed to demonstrate the necessary urgency and
prioritisation, around investment in systems, to provide effective governance
and monitoring of conduct risk.”
There was also a wide
variance in the quality and depth of the systematic review of policyholders and
products. Some did not complete this exercise and others did not provide data
on the number of policyholders affected or the estimated cost of remediation
activities. Insurers that completed the exercise identified at least 75,000
customer issues requiring remediation, with a value of at least $1.4 million.
Some of the new issues identified included:
Overcharging of premiums and benefits not being updated due to system errors, human errors and under-reporting of deaths
Poor customer conversations overlooking eligibility criteria and poor post-sale communications, which lead to declined claims and underpayment of benefits
Poor value products were identified, where premiums charged were not fair value for the cover provided.
Sales incentives and
commissions
The FMA and RBNZ committed
to report back on staff incentives and commissions for intermediaries. Previous
reports by the FMA reflected the concerns with conflicted conduct associated
with high up-front commissions and other forms of incentives, (like overseas
trips) paid to advisers.
Although some insurers have
committed to removing sales incentives for employees and their managers, not
all committed to removing or altering indirect sales incentives.
Those providers that have
removed sales incentives for employees don’t typically use external advisers to
distribute products. Providers using external advisers told the regulators that
changing long-held business arrangements and distribution models is difficult
and will take time to implement.
Mr Everett said, “We’re
ready to work with life insurers to ensure they prioritise their focus on
serving the needs of their customers, while at the same time balancing the need
to remunerate advisers for the important work they do to help these customers.
But we do not think high up-front commissions create confidence that insurers
and advisers are acting in the best interests of customers.”
Mr Orr said, “Good
governance within insurance firms requires the effective management of conflicts
of interest. We need to see much better systems and controls in place to manage
the inherent conflicts where advisers or sales staff are offered incentives to
sell or replace insurance policies.”
Next steps
Those companies that have
not undertaken comprehensive systematic reviews of policyholders and products
have been asked to complete further reviews of their systems to identify
issues, and to develop mature plans to respond and remediate any of their
findings. These plans must be completed by December 2019.
The FMA and RBNZ will
continue to monitor how the insurers are responding to recommendations and
implementing their work plans. Life insurers are currently not legally required
to become more customer-focused and the FMA and RBNZ found that the sector has
a weak appetite for change.
Deficiencies in some of the
plans received, and some insurers’ lack of commitment to implementing the
regulators’ recommendations, further demonstrates the need for additional
obligations to be included in the regulation of conduct of life insurers.
“This is a bit controversial, we know that,” deputy prime minister Michael McCormick told the National Party’s federal council, which on the weekend voted for a national roll-out of cashless debit cards for anyone younger than 35 on the dole or receiving parenting payments. From The Conversation.
The Nationals have joined the chorus within the federal government proclaiming the cards a huge success.
The Minister for Families and Social Services, Anne Ruston, has even gone so far as to claim welfare recipients are “singing its praises”.
Really?
Both McCormick and Ruston have proclaimed success based on the most
recent trial of cashless welfare in Queensland. This trial began barely
six months ago, and the independent evaluation by the Future of Employment and Skills Research Centre at the University of Adelaide is ongoing.
A more complex story emerges out of my research into lived
experiences of the first cashless debit card trial, which began in
Ceduna, South Australia, in March 2016
I spent about three months in the town of Ceduna between mid 2017 and the end of 2018 talking to people about life on the card.
All communities are diverse and people’s experiences diverge. Some
liked the card, or had come to accept it, others were caught up dealing
with far more significant problems.
But I talked to people who found the card “an insult”. They told me
it made them feel “targeted” and “punished”. They talked of degradation
and defiance. They also told me the card didn’t work.
As for the the claim by both Ruston (and her ministerial predecessor Paul Fletcher)
that the card empowers people to “demonstrate responsibility”, the
opposite was true. In the words of June*, an Indigenous grandmother,
foster carer and talented artist: “It has taken responsibility away from
me. It’s treating me like a little kid again.”
Indigenous testing grounds
Ceduna, in the far west of South Australia, was the first of four
sites chosen to trial cashless debit cards. The second was in the East
Kimberley
The location of these two trial sites meant early trial participants
have been predominately Indigenous. I am of the view that Indigenous
communities are being used as testing grounds for new technologies and
controversial measures.
In the first two trial sites, income support recipients younger than
65 have just 20% of their payment deposited into their bank account. The
remaining 80% goes on to their debit card, which cannot be used at any
alcohol or gambling outlet across the nation. Nor can they be used to
withdraw cash.
The lead-grey cashless debit card is similar but different to the
lime-green BasicsCard, introduced as part of the 2007 Northern Territory
National Emergency Response (the “Intervention”). The use of the
BasicsCard as an “income management” tool was extended to non-Indigenous
people in the Northern Territory in 2010, and to other states in 2012.
The BasicsCard generally quarantines 50% of a social security
recipient’s income so that it cannot be spent on alcohol, gambling,
tobacco or pornography. BasicsCard holders need to shop at approved
stores. In contrast, the cashless debit card, administered by financial
services company Indue, can theoretically be used wherever there are Eftpos facilities.
Shame and humiliation
My research wasn’t based on collecting statistics but “hanging out”
and getting to know people. I came to see the stigma associated with the
“grey card” sometimes resonated with past experiences.
Robert*, for example, told me about growing up on a mission and then
suddenly finding himself as “one little blackfella” in a large high
school. He was acutely sensitive to the “smirks” and judgements of
others whenever he used the grey card to pay for things.
Pete* left high school after a couple of weeks to join an itinerant
rural workforce that has since vanished. After decades of manual work,
finding himself unemployed due to ill health was devastating enough.
Being issued the grey card compounded his humiliation.
Others voiced their belief the grey card was designed to induce
shame. But they refused that shame, expressing instead a defiant belief
in the legitimacy of their need for support.
The welfare system often defines people by the one thing they are not
currently doing – waged employment. But many people I spent time with
in fact laboured constantly: it just wasn’t recognised as work. People
like June*, for example, looked after sick kin, the elderly and
children. Yet the grey card treated them as dependents.
I heard about ways of getting around the card’s restrictions. As one
acquaintance put it: “Drunks gonna drink!” One strategy involved
exchanging temporary use of the card for cash. With terms that nearly
always disadvantage the card holder, it has the potential to make life
tougher for people living in hardship.
The evaluation of the Ceduna trial for the Department of Social Services
was more positive, noting that alcohol drinkers and gamblers reported
doing so less frequently. But it also noted no reduction in crime
statistics related to alcohol consumption, illegal drug use or gambling.
And the Australian National Audit office was so critical of the
government’s evaluation it concluded
that it was difficult to ascertain “whether there had been a reduction
in social harm” as a result of the card’s introduction.
Which makes simplistic claims about the card’s success look a bit rich.
Author: Eve Vincent, Senior Lecturer, Macquarie University