Over the last few days, a letter has been arriving in the mailboxes of the 200,000 AMP Life policyholders. It comes from board chairman Trevor Matthews.
“Dear Customer,” he says. “I wanted to provide an update on the proposed sale of AMP Life to Resolution Life, as there has been some speculation in the media in New Zealand recently that may be unduly concerning for you.”
Resolution Life is a Bermuda-based company which makes its money buying so-called “zombie” or closed insurance books. Read Newsroom’s first story here.
If Newsroom’s inbox is anything to go by, customers are definitely concerned. Whether “unduly” or not remains a matter of debate.
Matthews’ letter continues: “Importantly, all the terms and conditions of your policy will remain unchanged after the sale completes.”
That’s crucial. Because it sounds reassuring. Nothing will change, says AMP. All will be well.
The trouble is, any comfort from knowing your terms and conditions remain the same can only come if you are confident your policy terms and conditions will protect you – no matter who your policy is owned by.
And that is not necessarily the case.
Several AMP customers sent Newsroom their policy documents.
Some are old – really old.
So old that they still have the old Australian Mutual Provident Society logo with a robed woman on a podium appearing to whack a semi-naked man on the head with a frond.
Or, 15 years later, the same woman, now semi-naked herself, towering above a man in a t-shirt and farmer’s hat.
But we digress.
What strikes one looking at these early contracts is how short they are. One page.
The 1952 policy document has six conditions, the 1976 one has 12. They are business like: AMP will have to verify your age (and death) before they will pay out; customers need to come into an AMP office to pay their premiums; AMP will abide by decisions of the Supreme Court.
It’s a different world.
These contracts were written at a time when AMP was a mutual society – it was owned jointly by all its policyholders.
Under a mutual, the interests of the company’s customers were the same as the interests of its shareholders, so there was little need to worry about bad faith or unfair conduct.
But the situation changed when AMP was demutualised in 1997. Instead of being owned by its policyholders, it had shareholders. And increasingly the two groups weren’t the same people.
The shareholders want the company to make money. In theory they will be keen to take in as much as possible in premiums and to pay out as little as possible in claims.
The policyholders want the opposite.
This inevitable tension has been mitigated to a large extent over the last three decades because AMP Life is a well-known brand with a reputation to uphold with existing and new customers.
This is not necessarily the case if the policies are sold to Resolution Life, a Bermuda-based company. Even more so since AMP stopped selling new policies last year, so there are no new customers to win over.
Overseas, funds which stop issuing new policies but hold on to the money invested until the existing policies mature are colloquially known as “zombie” funds.
The problem with the small print
Auckland barrister Sandra Grant has fought insurance companies, including AMP, in some high-profile cases.
She said she wasn’t reassured by Trevor Matthews’ letter to AMP customers about terms and conditions remaining the same.
“On a lot of policies there is a clause saying insurance companies can make changes. Although most people don’t read the small print,” she says.
She’s talking here about more recent contracts, the ones with dozens of pages of terms and conditions
Take this clause, present in many AMP contracts:
“We may vary the premium at such times as we vary premiums for all policies issued under the same table of premium rates used by us, and available on request.”
Or, from another AMP policy sent to Newsroom: “Your premium rates, including level premium rates are not guaranteed. We may vary our premium rates in any way from time to time.”
Andrew Body is an AMP Life policyholder who is so concerned about the AMP-Resolution Life deal he has started a petition to parliament urging politicians to review insurance company regulations to make sure policyholders are treated fairly and transparently.
He told Newsroom that AMP has used this clause about varying premiums to more than triple his premiums over 20 years. This is despite the fact he has a “level” life insurance policy, where premiums aren’t meant to go up.
A chart of his premiums shows they went from $1000 a year in 2000 to $1750 in 2008, $1970 in 2009, $2800 in 2013 and $3,493 last year.
That’s a 350 percent hike.
“These were substantial increases and they put the prices up without any proper explanation,” Body told Newsroom. “I had various communications with them in 2007 and 2008 and it never got to a point where they could explain it. They just said: ‘Our costs have gone up’.”
He said the policy premium had gone up far more than the benefits.
“There is no reason they can’t do that again.”
That’s a risk, another AMP customer says.
“The new owners could put up premiums by 25 percent or 30 percent in the hope they will make more money or reduce claims. The AMP chairman’s soothing words do not and cannot address this.”
AMP Life responds
Megan Beer, chief executive of AMP Life and head of Resolution Life in Australasia, said policyholders shouldn’t be worried.
“AMP Life will continue to deliver on customer promises and services. This doesn’t change under Resolution Life,” she said.
“Our primary obligation is to our policyholders – to prioritise our commitment to our policyholders over our shareholders.”
Beer told Newsroom customers shouldn’t be worried about their bonuses being paid if their policies were owned by a Bermuda-based company.
“Bonuses are guaranteed; any assessment of claims is about being fair and reasonable. Customers will be paid, and this is of paramount importance to us,” she said.
Beer is talking about annual bonuses here, just one of two different bonuses on AMP’s older life policies. So-called “terminal” bonuses – a major part of a customer’s final payout – are not guaranteed, and customers and advisers that spoke to Newsroom suggested paying these bonuses could be an easy way for Resolution Life to pay less on claims.
Beer disagreed. She said one way the owner of the policy (AMP or Resolution) got a profit from these life policies was through a 20 percent share of bonuses paid to customers.
“So if there is no future terminal bonus paid, there is no share of profit paid,” she said. “It’s in Resolution’s interest as the owner that AMP Life continues to manage the portfolio to the benefit of customers.”
Conduct and misconduct
Fair treatment of customers has been under a lot of scrutiny over the last couple of years – and insurance companies have not come out squeaky clean.
The 2018 Royal Commission into financial sector misconduct in Australia slated AMP for its behaviour.
This side of the Tasman, the Financial Markets Authority and the Reserve Bank looked in 2019 at whether New Zealand’s life insurance companies were putting their customers first and treating them fairly. Their report – Life insurer conduct and culture – wasn’t encouraging.
“Life insurers have been too complacent when it comes to considering conduct risk, too slow to make changes following previous reviews, and not focused enough on developing a culture that balances the interests of shareholders with those of customers,” the review concluded. “Consumer trust is paramount to the effective functioning of the life insurance industry in New Zealand. We are concerned that this trust could be eroded unless life insurers transform the way they approach conduct risks and issues, and achieve a customer focused culture.”
Matthews’ letter was only the second communication customers have received about the Resolution Life sale, which Megan Beer said was still on track to go ahead by June 30, as long as the Reserve Bank gives its go-ahead.
The first letter was a bare-bones announcement in October 2018. Following media scrutiny, AMP also put an FAQ on its website this week.
‘Why don’t you front?’
Andrew Body said there were still no details about the sale, and there was very little information about Resolution Life.
Most importantly, there was nothing concrete to back up AMP Life’s claims that policyholders’ interests will be protected if their life policies are sold offshore.
“AMP is now saying that nothing will change,” Body says,” but I don’t understand how that can be the case, particularly when the policy contracts seem to be so unclear and offer so much management discretion to AMP.”
He is calling on AMP and Resolution Life leaders – notably Resolution founder Sir Clive Cowdery and AMP group CEO Francesco De Ferrari – to come to New Zealand and front up to Parliament and policyholders.
“They should come and speak to the Finance and Expenditure Select Committee and make these promises in a way that are enforceable in New Zealand, rather than being vague and open-ended.
“I challenge them to come to New Zealand before the Reserve Bank makes any decision about their application and back up their statements with enforceable promises.”