COMPLIANCE NEWS - INSURERS
DECEMBER issue | 2018
This month we look at amendments to the Solvency Standards, the proposition of insurance for depositors, a delay in finalising the Code of Professional Conduct for Financial Advice Services, and scrutiny of the commissions and incentives provided to advisors in the insurance
sector. We also provide our general update on relevant legislation.
THE RESERVE BANK OF NEW ZEALAND AMENDS THE SOLVENCY STANDARDS FOR LIFE AND NON-LIFE INSURANCE BUSINESSES
The Reserve Bank of New Zealand has issued amended versions of the Solvency Standard for Life Insurance Business 2014 (Life Solvency Standard) and Solvency Standard for Non-life Insurance Business 2014 (Non-life Solvency Standard).
The amendments for the Life Solvency Standard include the requirement for an insurer to engage an auditor to undertake a reasonable assurance level audit of the annual solvency return. The amendments to the Non-life Solvency Standard include the major earthquake risk return period which is used to calculate the catastrophe risk charge in the Non-life Solvency Standard.
RESERVE BANK ACT REVIEW CONSIDERS DEPOSIT INSURANCE
As part of the second phase of the Reserve Bank Act Review (Review), feedback is being sought from the public by a joint team of Treasury
and the Reserve Bank of New Zealand staff. The consultation is focussed on 5 key issues, including whether or not there should be protection for deposits in New Zealand. The Review considers insurance as an approach to such protection.
The deposit insurance scheme would pay eligible depositors up to a pre-set maximum limit if a bank failed and was liquidated. Depositors
who did not qualify for the insurance or whose deposits were above the maximum limit still would face risk of loss. The insurance would be compulsory, with depositors possibly paying premiums to fund the scheme through bank fees.
A copy of the Consultation Paper can be found here. The opportunity to provide feedback on the Review ends on 25 January 2019. After this date, the Review team will consider the submissions received and publish a report summarising the key messages and themes emerging
from the submissions.
Please contact us if you have any questions on the Review or if you would like us to prepare a submission on your behalf.
DELAY IN FINALISING THE CODE OF PROFESSIONAL CONDUCT FOR FINANCIAL ADVICE SERVICES
The draft Code of Professional Conduct for Financial Advice Services (Code) will not be finalised before the end of this year, as had been anticipated. The Code is expected to be finalised early in 2019. Once the Code has been finalised, it will be submitted to the Commerce Minister. The Commerce Minister will sign off the finalised Code and the regime under the Code will take effect nine months from the date
the Code is signed off by the Commerce Minister.
The Code Working Group continues to review the feedback it has received and consider particular points raised in submissions in greater detail. There may be further targeted consultations to discuss the specific points raised by submitters.
Please contact us if you have any questions on the Code.
COMMISSIONS ONCE AGAIN SCRUTINISED BY THE RESERVE BANK OF NEW ZEALAND
The Reserve Bank of New Zealand's (RBNZ) recent Financial Stability Report has turned its attention to the life insurance sector. RBNZ
considers the level of commissions and other incentives that life insurers pay to advisors can create conduct risk. In some cases, advisors
could be incentivised to encourage policyholders to switch to different insurance policies even if the changes do not benefit the policyholders.
Life insurers in New Zealand pay double the amount in commissions that life insurers in other parts of the world do. For example, life insurers in Australia pay out 10% of gross premium revenue as commission. Whereas, life insurers in New Zealand regularly pay out 20% of gross premium revenue as commission.
RBNZ and the Financial Markets Authority are currently reviewing the conduct and culture of the life insurance sector. A report is expected to be published early next year.
Review of the Insurance (Prudential Supervision) Act 2010
Further to our comments made in our April Issue, no new information has been released regarding the review of the Insurance (Prudential Supervision) Act 2010 (IPSA). Work on IPSA has been deferred until the Reserve Bank of New Zealand completes its other initiatives which
take priority over this review.
Financial Services Legislation Amendment Bill
The Financial Services Legislation Amendment Bill (Bill) is still before the Committee of the Whole House. The Bill is an omnibus Bill which makes amendments to the Financial Markets Conduct Act 2013 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008. A number of regulations will need to be made to support the measures in the Bill. The intention is for the Bill to pass before Christmas
or early 2019.
Insurance Contract Law Review
Fair Insurance Code
The Insurance Council of New Zealand (ICNZ) is in the process of reviewing the Fair Insurance Code and the submissions received from the public. The ICNZ expects the new Fair Insurance Code will be introduced in 2019. We will update you as new information comes to hand.
Earthquake Commission Act 1993
The Earthquake Commission Amendment Bill (Bill) is now with the Committee of the Whole House. The Bill makes changes to the Earthquake Commission Scheme to simplify and speed up the claims process. We will update you if the Committee provides a report on the Bill.
Canterbury Earthquakes Insurance Tribunal Bill
The Canterbury Earthquakes Insurance Tribunal Bill (Bill) is currently before the Select Committee. The Bill intends to establish the Canterbury Earthquakes Insurance Tribunal (Tribunal). The Tribunal will provide speedy, flexible, and cost-effective services to help resolve insurance claims between policyholders and insurers, and insured persons and the Earthquake Commission. Claims must relate to damage to residential buildings, property, or land caused by the series of Canterbury earthquakes which occurred in 2010 and 2011.
The Privacy Bill is currently before the Select Committee. Parliament is currently reviewing the submissions received from the public. We will update you when new information comes to hand after the submissions have been reviewed.
Our next Compliance News Bulletin will be sent in February 2019. We wish you all the best for a relaxing holiday break.
The offices of Mahony Burrowes Horner will close for the holiday season at 5pm on Friday 21 December 2018 and reopen on Monday 14 January 2019. If any urgent matters arise during this time please contact Elspeth Horner at firstname.lastname@example.org or 029 495 8932,
or Tom Mahony at email@example.com or 029 454 4005.
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Disclaimer: The information contained in this newsletter is provided for informational purposes only, and should not be construed as legal advice on any matter.