Conduct questions are topical right now for financial services. There are lots of articles being penned about how, based on an Australian Bank’s advice on Australian Superannuation, there are probably the same conduct problems in New Zealand. Well, maybe, but in a functioning market there are always some examples of bad conduct. How widespread are they? What do they look like?

So, we need some practical, and frankly, New Zealand, examples to work with. I shall offer a couple of examples of how poor conduct can cause customer harm.

Replacement business is a prime area of concern, which is why it has been one of the limited number of areas of the life insurance sector to be examined by the FMA. As ever, it is a balancing act. MBIE likes to see a certain level of replacement business activity, because it shows a functioning market. On the other hand, inappropriate replacement, which causes harm to the consumer, is something we want to prevent, or at least, minimise. Harm can be caused when a consumer switches and loses some cover or features that they had, or perhaps if they have to accept reduced coverage due to a change in health – without realising that they have done so.

A change where the consumer is completely informed and happy – even with a downgrade – has probably caused no harm. After all, people downsize their cars and homes to save money from time-to-time as well. The tricky bit is knowing whether the advice was good and the consumer knew what they were doing. Which is why we tend to focus on the procedural aspects of advice giving, and record-keeping. The FMA has done some recent work on this, analysing five years of policy data to hunt down cases where replacement business may have caused harm. They have published their results, and, while not reassuring on a wider basis (because you cannot extrapolate from a group specifically chosen because of indications of riskier behaviour) they didn’t find many examples where the advice process could be faulted under the current law. That might be one reason why the focus has moved on to other concerns.

But what conduct issues apply to insurers? There can be many, but I shall offer just one, which could apply to you as an adviser as well. Broad product suitability, not advice as such, but a simpler question, that applies when either you or the insurer knows your product range better than the client – which should be all the time. What if a client responds to an advert, perhaps clicking on a link for a non-underwritten insurance, is a duty owed to explain to the client that if they are young and healthy, and were happy to answer the questions necessary for a fully underwritten product, that they would get cover with no exclusions and, probably, at a lower premium? Imagine the conversation; instead of just issuing the policy, we call the client and explain: ‘this might not be the best option for you’. They reply, but I don’t want to fill in the forms, as I’m leaving on a six-week tramping holiday this afternoon and I don’t have time.

Well and good, perhaps. But do you still have a duty to say, if you just filled in our online application you could still get it done? Or what about any existing cover, do you have a special events option? You can see how good conduct without good boundaries might quickly stray into the realm of advice. For once you might be glad – how much simpler it is if your whole business is about giving good advice.