The International Monetary Fund has called for
increased regulation of the insurance sector and now Insurance Business has spoken to industry insiders, who for the most part feel that the sector is adequately regulated barring some issues that need addressing.
According to S&P Global Ratings insurance senior director and credit analyst Mark Legge, it is important to look at framework, track record, governance and transparency.
“Our assessment of regulation includes how sophisticated and effective the authorisation and supervision of insurers is,” he said.
He explained that the
RBNZ has a reasonably short tenure as an insurance prudential regulator compared with the Australian Prudential Regulation Authority (APRA), which maintains close oversight of insurers, including regular on-site and off-site analysis.
“We do regard the reasonably new regulatory framework under the RBNZ as more robust and comprehensive than prior arrangements, and it has operated in line with S&P Global’s expectations since the regime commenced in 2013,” he said.
He added that APRA releases detailed quarterly data on the industry, whereas New Zealand is still developing its industry-based prudential data.
Mark Guppy, CEO of
Allianz New Zealand, said that insurers already operate in a heavily regulated environment and that the transparency of the sector has developed significantly over the last 10 years; while Seneca Group insurance broker Sam Kerr drew attention to “the changing regulatory environment that needs to be shaped to how consumers now access insurance products.”
He said that what really needs to be addressed is the way insurance advice is distributed - and where it is, in fact, not advice.
“Look at the fact that QFE advisers are seen as ‘advisers’ under the current legislation,” he pointed out. “This means that someone in a bank with very little insurance knowledge can be compared to an independent advisor or broker who can give more personalised advice.
“Often the products QFE advisers sell are not in the best interest of the client, and this is where the code of conduct really has to be addressed in terms of what constitutes acting in the best interest of the client.”
Dr
Michael Naylor, an insurance expert at Massey University, was unequivocal in his view that a lot more disclosure is required in the industry.
“Insurance is a ‘promise business’, so insurers have a fiduciary duty to safeguard client money,” he said. “It is a complex issue as commercial sensitivity is involved.”
Southern Cross CEO Chris White took a pragmatic approach, saying that in terms of regulation it is simply necessary for the industry to “bed down, understand what is required, and apply it.”
Auckland barrister Veronica Cress, meanwhile, sees the IMF report as aspirational.
“It simply compares New Zealand regulations to an international set of ‘core principles’ and suggests how to bridge any gaps,” she said.
However, she pointed out that a “one size fits all” approach to insurance regulation does not always work in small markets like New Zealand.
“In my view, many of the recommendations in the IMF report are unlikely to be implemented because they are either unnecessary under local conditions or they go too far beyond the statutory objectives and resource limitations of the current regulatory framework,” she suggested.
Tim Grafton, CEO for the Insurance Council of New Zealand (
ICNZ), pointed out that the Insurance (Prudential Supervision) Act 2010 (IPSA) is currently under review.
He highlighted that banks and insurers are different financial organisations that need to be regulated differently to reflect differing risk profiles.
“Several of the issues raised by the IMF would require RBNZ to have more resources than it currently has, that licensed insured in New Zealand must have sufficient solvency to meet a 1:1000 year event (fare exceeds the 1:200 year frequency in Australia and elsewhere in the world), and that
FMA funding is increased,” he said.
“It has indicated this will mean more scrutiny in the insurance sector, importantly including brokers.
“Also, the Financial Advisers Act and Financial Service Providers Act have been reviewed with a view to having greater transparency around broker commissions and minimum competency and on-going professional development requirements.”
He pointed out that already the RBNZ requires licensed insurers to provide a considerable amount of information on a quarterly, half-yearly and annual basis.
“ICNZ members are required to abide by the Fair Insurance Code with respect to their customers,” he noted. “This places obligations on them, among other things, to act honestly, fairly, transparently and with utmost good faith towards customers.”
He underscored that of the 1.12 million claims managed last year, only 14 complaints were upheld against members by the external dispute resolution schemes for any breach of the code.
“For listed companies, I am not aware of any breaches of stock exchange listing rules. As for the regulators, I am not aware of any issues around access to information.”
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