The Reserve Bank of New Zealand (
RBNZ) has opened its consultation paper into whether audit requirements are needed for insurer data returns - submissions are open for two months until December 16 this year.
RBNZ said its preferred option is to require a reasonable assurance audit of; the insurer return – on an annual basis for large insurance, and triennially for medium-sized insurers, and the annual solvency return for licensed insurers (subject to the RBNZ’s solvency standards), while retaining the existing carve out of catastrophe risk calculations and future projections.
In New Zealand, licensed insurers operate within the framework established by the Insurance (Prudential Supervision) Act 2010 (IPSA) and supporting secondary legislation. The purpose of the IPSA is to promote the maintenance of a sound, and efficient insurance sector, and to promote public confidence in the insurance sector.
RBNZ said a section (12) under the IPSA gives it some specific functions to support these purposes such as: license insurers, impose prudential requirements on insurers, supervise compliance with those requirements, and take action in respect of insurers in distress.
RBNZ said there are a number of ways in which the provision of high quality data by insurers to the RBNZ can help meet the purpose of IPSA, and help the RBNZ to undertake its functions.
The bank broke this down by noting that firstly it gains itself a better picture of the insurer for use in its supervisory activities. And secondly, the publication of data collected by the RBNZ, at aggregate and company level, facilitates analysis by third parties, which contributes to market discipline.
The provision of high quality data provides some evidence that the insurer has “good information systems, reducing the risk that management and the board are misinformed.”
RBNZ highlighted that the introduction of a reasonable assurance audit requirement will provide another perspective on the return, fully engage the responsibility of the audit and lead to the deployment of additional and more experienced audit professionals.
The bank noted that a limited assurance review, would, on the other hand, be less thorough, reducing the potential quality benefit.
“Reasonable assurance audits are likely to uncover deficiencies in data systems and infrastructure that will need to be addressed by insurers,” it stated. “As remediation plans are executed, the quality of data being submitted to the RBNZ should rise.”
RBNZ listed other benefits including the reduction in the need for resubmissions of returns, freeing up RBNZ and insurer staff time; quickening the clearance of data for publication and use; broadening the range of items that can be published; and supporting higher quality analysis by RBNZ, insurers and other interested parties.
An audit requirement will add a step in the process of completing returns; RBNZ notes that it already allows insurers to submit insurer returns up to four months post balance date.
Following the consultation, the RBNZ will make decisions on: whether to impose an audit requirement in respect of the insurer return, the level of assurance that would be required, together with the scope, frequency and permanence of the requirements, and whether to strengthen the existing audit requirements for the solvency return.
RBNZ said it was inviting submissions from insurance industry participants, industry and professional bodies, audit firms, consumer representations and the general public.
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