Now is a good time to talk about vulnerability.  Now, because so many people in our team of five million are facing financial hardship.  And now, because once you have a critical mass in similar circumstances, the stigma of hardship and vulnerability erodes. 

New Zealand’s financial vulnerability has always been there, it’s just that COVID-19 has exposed it.  New Zealanders have the worst savings rate in the OECD and our own research shows people’s confidence about their knowledge in insurance is very low. 

In April, during lockdown, the Commission for Financial Capability surveyed over 3,000 New Zealander’s about their financial wellbeing and the results showed that 34% of households were in difficulty and 40% were at risk of tipping into hardship.  Our financial resilience is such that many kiwis are one pay cheque away from disaster. Organisations such as FinCap who work with the most vulnerable in our communities are predicting the last quarter of the year to be when we will see a large wave of people in dire straits and needing support.

From the early days of COVID-19 insurers developed a set of core principles for how it wanted to treat people. Included in these was a commitment to responding flexibly and responsibly to those in financial hardship or who are vulnerable.  Insurers moved quickly to put in place a range of measures including premium freezes, premium refunds, deferred timing for premium payments and flexibility on changing terms of policies to make them more affordable.

But understanding and responding to vulnerability didn’t start there for the industry.  Back in 2016 the Human Rights Commission worked with ICNZ to develop best practice guidelines for the prioritisation of vulnerable customers for ICNZ members.  These guidelines are referenced in the Fair Insurance Code.  The value proposition of insurance is being there to put you back on your feet when the worst happens, so working with people when they have suffered a loss is in our DNA.

The treatment of vulnerable customers was a focus of the Australian Royal Commission. Since then the FMA, in their thematic review of Banking and Life insurance conduct, said they expect insurers to identify potentially vulnerable customers, and have policies, processes and training for staff and intermediaries in place to support and deliver good customer outcomes.  They have recently published high level expectations separately, further spelling out their expectations that firms can demonstrate how they have embedded identification and management of customers experiencing vulnerability.

These expectations align with insurers approach to think widely about vulnerability to include financial exclusion, capability and resilience, health, life events and relationships and isolation.  Insurers agree it as a fluid state, not a label. We must discern between situational vulnerability, which can be bounced back from relatively easily, versus chronic, intergenerational, complex, and multi-pronged vulnerability.

Understanding and identifying vulnerability through various indicators is a first and important step.  The challenge set for insurers is then how to respond differently.  In many cases it may mean offering different ways of communicating. It will always mean treating each person fairly, as an individual and remaining flexible.

While our members report being well down the path with developing their policies and systems, training their people and developing partnerships they are always re-evaluating for new thinking to ensure alignment with customer and regulator expectations.  For our part, ICNZ is leading a bi-monthly discussion group so that members can share best practice and learn from each other and providing resources to assist brokers and intermediaries.

We look forward to sharing our insights with the FMA when their next steps come to light.

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