The first phase of the review of the Insurance (Prudential Supervision) Act 2010 is currently under way, with the Insurance Council of New Zealand in consultation with the Reserve Bank of New Zealand on issues to be covered.
The Insurance Council of New Zealand has heartily welcomed the review.
“The act was passed over six years ago, so it is timely in light of experiences since then and the pace of change in the sector globally to review matters. Ideally, the review should be conducted independently of the Reserve Bank, but the process that has been outlined provides plenty of scope for input,” says
ICNZ CEO
Tim Grafton.
He points out that crucial to the review is the fact that New Zealand insurers currently have the most stringent capital requirements in the world for catastrophes.
“They have to carry sufficient capital or reinsurance to meet a 1:1000 earthquake event. This means insurers have plenty of means to respond to the extreme weather events whose losses are significantly less than a major earthquake,” he says.
He adds that offshore insurers that are licensed in New Zealand are well regulated offshore with significant capital requirements placed on them by their regulators.
“So while there is some risk, it’s small,” he notes.
As to whether all insurers should be locally incorporated, Grafton is of the opinion that it “really depends on what outcome the bank wants to achieve by incorporating locally.”
“Government’s main role should be to ensure insurers are solvent.
RBNZ must have oversight and it must be satisfied that an insurer of New Zealand policyholders can pay valid claims,” says Grafton.
He underscores that of importance for the moment is that the industry has an opportunity to identify issues that it wants considered and that the RBNZ will review them and consult further on policy options that arise.
“The RBNZ is also open to suggestions on additional issues to the ones already identified,” he says.
“Further consultation is set to take place at a later date, with an exposure draft of proposed legislative changes.”
Any new law will not be enacted until 2018 at the earliest, and the RBNZ has committed to a transition period to manage any changes.
Grafton adds that he is pleased to see that the RBNZ has identified potential issues to address that have been a concern to the industry such as contracts that appear to be insurance contracts but which are in fact not.
“An example is insurance contracts provided by some rental car companies,” he exclaims. “Such contracts mislead the public and limit their rights.
“This is just one aspect of many substantial issues the first phase of the review raises.”
Grafton says the ICNZ has been consulting with its members to coordinate an industry response.
“We are also keen to see greater transparency and cost-benefit analysis around RBNZ decision-making,” he adds.
Dr
Michael Naylor, an insurance expert at Massey University, says current RBNZ “capital arrangements are fine” and based on what actuaries predict the future holds in an area where science is still evolving.
“Recent comments from scientists indicate that New Zealand could be subject to a previously unimaginably large quake if the main fault line ruptures. The insurance impact of this is still to be estimated,” he adds.
“And if clients are to have faith in their insurer not to fail during a large event, then they should be voluntarily releasing enough information to allow independent actuaries to publish in-depth risk ratings.”
According to Marc Guppy, CEO of
Allianz New Zealand, the insurance industry already operates in a heavily regulated environment in which
Allianz works closely with the RBNZ to assist in the supervision of the industry.
He adds that capital requirements are a matter for the Government to resolve.
“But it’s imperative that all insurers operating in New Zealand are well capitalised to ensure all policyholders are fully protected,” he says.
As to whether it is workable for government to require insurers to be locally incorporated, Guppy is of the opinion that the Government has to assess the tradeoffs inherent in such a requirement.
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