As part of their report into the conduct and culture of New Zealand life insurers, the Financial Markets Authority and Reserve Bank questioned how legacy products were dealt with.

Legacy products are those that are no longer open to new clients but which are still offered for those who already have the policies.

The regulators said they heard evidence that insurers’ staff and advisers lacked understanding of legacy products because they had insufficient training and guidance.

“Insurers rely heavily on a relatively small number of long-tenure staff members’ experience with these products. There is a risk to the insurer and its legacy product customers if these staff members leave. Insurers need to better mitigate this risk,” they said in their report.

“Some insurers’ systems for legacy products were outdated, with many relying on manual systems and processes. A lack of investment in systems and training appeared particularly acute for legacy products and needs to be addressed. Our expectation is that legacy customers should not be given less attention than newer customers or treated in a way that risks poorer outcomes for them.”

Naomi Ballantyne, managing director of Partners Life, said her firm had decided as a new entrant to the market that it would automatically upgrade existing clients’ policies as new products were released.

She said, while it took commitment to keep increasing the risk associated with the customer base,  it paid off in the reduced cost of administering old products and protection against churn.

But she said regulators needed to realise that life insurers were not like fire and general insurers, where one policy would effectively be replaced with another each year.

Life insurers are bound to continue to offer the terms a client signed - or better - as long as that person was paying for the policy.

“Legacy products are a bit more complex than the regulator would like to think… it isn’t a banking system or a fire and general system where it doesn’t matter what the client was covered for three years ago. We have to keep it forever.”

Some legacy products offered more generous wordings than modern policies, and customers might want to stay with them, she said.

But she said the regulators’ criticism could have come from some insurers leaving policies in old systems and “forgetting about them altogether”. Some insurers were stuck with large books of legacy products on old software systems and it was unwieldy and expensive to try to update them, she said.  "Making any change on the old systems is hard."

The main criticism of automatically upgrading old policies was that it meant higher premiums for all clients, she said, and policies upgraded whether the client wanted it or not. But she said that was offset by clients no longer having to wonder if their policy was up to modern standards.