Review of the Insurance (Prudential Supervision) Act and insurer solvency standards will be back underway in October, the Reserve Bank has announced.
Formed in September 2010, the Act's purpose is to maintain a "sound and efficient insurance sector". It covers licensing and regulation of insurers, including solvency standards, which define the amount of capital an insurer is required to hold.
Having started with industry consultation in 2017, the review was set to resume in March, but was put on hold due to COVID-19. In an announcement to the Insurance Council on Monday, Reserve Bank deputy governor Geoff Bascand confirmed the review will relaunch next month.
"The reasons for enacting Insurance Prudential Supervision (IPSA ) haven't changed. It's good regulatory practice to review legislation to ensure it is working effectively and update it for the lessons learned over the past ten years," he said.
There are around 90 licensed insurers, from international companies to those providing group benefits. Insurance products offered to customers include home and contents, motor vehicle, travel, life, health, disability, credit, income protection, business interruption and other products or services.
"Customers expect to be able to insure their homes and possessions and obtain life and disability insurance, and businesses utilise a range of insurance products to protect their assets and business interruption exposures," Bascand added.
Partner's Life managing director Naomi Ballantyne, said over the last decade, the way customers seek and receive financial knowledge has changed. In the life insurance sector, reasons for underinsurance, and the role of financial advice in educating customers, will be an important consideration for regulators.
"Legislation focused on the protections for, and understanding of, consumers and customers is key to increasing confidence in the sector," Ballantyne said.
"The Reserve Bank's focus on transparency is intended to achieve this."
During current uncertain times, it's prudent for insurers to hold more capital to ensure claims can be paid.
"There are some aspects of the current regulated methodology for calculating required solvency that might not achieve the outcome they were designed for and which differ from the requirements in similar markets, meaning a review would be appropriate," she said.
In a Reserve Bank May 2020 Financial Stability Report, it noted that as a result of COVID-19, changes in interest rates, bond spreads and share prices increased insurer' exposure to investment losses. Travel insurance claims had increased and unemployment had an impact on credit insurance. There were also questions raised about the scope of business interruption insurance.
“There is considerable uncertainty as to how Covid-19 and the associated economic downturn will affect New Zealand insurers,” Bascand said.
“Whilst death and disability claims do not currently pose a threat to the solvency of life insurers, Covid-19 could play out in a number of ways, including the possibility of further waves of infection.”
As availability and affordability of insurance was important for many business activities, the insurance industry made an important contribution to economic recovery.
Throughout the review, the Reserve Bank intends to seek regular feedback from insurance industry stakeholders. Objectives and topics of the review will be released in October, along with a consultation paper on insurer solvency standards.