The Reserve Bank of New Zealand (RBNZ) has launched an omnibus consultation (Consultation) as part of its review of the Insurance (Prudential Supervision) Act 2010 (IPSA). This is the final policy consultation before an exposure draft of an amendment bill is released for further consultation (likely in early 2025).
Submissions are open until 12 December 2023.
The changes proposed are profound – we provide our initial thoughts below and will provide a more detailed view next week.
Who should read this? Why?
The Consultation affects all those carrying on insurance business in New Zealand – including those locally incorporated and overseas insurers (including reinsurers) carrying on insurance business in New Zealand.
Feedback is sought on all proposals, including those from previous consultations. Specific questions have been asked on new material or where added detail has been provided. Accordingly, where a proposal affects your business, we encourage you to make a submission.
What does it cover?
The Consultation draws out four key review themes that have guided the RBNZ in its review of IPSA, being:
• underpinning a more proactive and intensive approach to supervision;
• greater oversight of overseas insurers;
• enhancing policyholder security in the context of changes to the New Zealand insurance industry; and
• refining the scope of legislation through greater clarity about the regulatory boundary and minor changes to statutory purposes and principles.
We intend to issue a further update, with detailed analysis of the Consultation’s recommendations next week. In the meantime, we summarise the Consultation’s recommendations:
A more proactive and intensive approach to supervision
The RBNZ would like to align IPSA with its aim to take a risk-based, proportionate and proactive supervisory approach. The proposals include increased use of industry standards for clearer governance and risk management expectations, and greater enforcement tools for compliance measures.
The RBNZ aims to manage risks of cross-border arrangements. One of the proposals is a duty on CEOs of New Zealand branches of overseas insurers to exercise diligence to ensure the insurer complies with its IPSA obligations (the same duty proposed for directors of New Zealand-incorporated insurers).
Policyholder security and statutory funds
The introduction of a policyholder guarantee scheme for New Zealand is not being recommended at this time.
Legal definitions, regulatory scope and statutory purposes
The proposals aim to provide clearer definitions that set IPSA’s regulatory boundaries – including what is a contract of insurance and when is a person carrying on insurance business in New Zealand. One proposal is to require insurers that are based in New Zealand but with no New Zealand policyholders to obtain a licence.
There are a number of significant proposals in the Consultation, many of which will have a profound impact on the regulation of insurers in New Zealand.
The Consultation also signals the RBNZ’s intent to create a regime that allows for a more proactive and intensive approach to supervision – with increased scrutiny around solvency, as well as wider prudential matters.
Ultimately, the Consultation proposes both to widen the scope of the RBNZ’s regulation and provide increased power to supervise those within that scope.
We intend to issue a further update, with detailed analysis of the Consultation’s recommendations next week.
If you have any questions about the consultation or the IPSA regime generally, please contact one of our experts.
This article was co-authored by Sarah Jones, a Solicitor in our Financial Services team.
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