A number of issues are of ongoing importance to the insurance sector in New Zealand.
We keep a close eye on regulatory issues so we can advise government and the sector on them as and when needed.
Fire & emergency services levy collection review
ICNZ is a strong advocate for reform to the way New Zealand's fire and emergency services are funded. For over 40 years, fire services in New Zealand have been funded by a tax on New Zealanders' insurance policies. That tax is outdated, unfair and inefficient. A levy on insurance is the worst possible option for funding Fire and Emergency New Zealand (FENZ), and finding supported by around 20 independent reports produced since 1993.
We see several reasons for this.
- FENZ' response to fires and emergencies is a public good. Public goods should be publicly funded through general taxation.
- FENZ shows up to fires and emergencies regardless of whether the person or property involved is insured, so the historic link between property insurance and the Fire Services is tenuous.
- People who have to pay the levy on insurance and their advisers have historically structured their insurance arrangements to avoid levy, which adds costs to the regime and makes it more inefficient.
- General taxation is the best option for emergency service funding. It would be more cost effective as Government would be able to use existing tax collection systems - the Inland Revenue - instead of private insurers and FENZ having to pay extra to administer collection. It would be a more stable and predictable funding base than insurance. It would increase FENZ' spending accountability and efficiency as it would be subject to scrutiny by The Treasury.
- Funding emergency services through a levy on insurance is out of line with other New Zealand agencies (like the Police) and international practice.
ICNZ will continue to argue that, as a public good, FENZ should be funded through general taxation and not through an arbitrary levy on insurance.
You can find more information about the 2015 review of fire service and its funding on the Department of Internal Affairs website.
In addition, ICNZ commissioned the New Zealand Institute of Economic Research to review the tax on insurance to fund the fire service.
Financial advice reform
ICNZ supports robust professional standards for all financial advisers, including insurance brokers. These standards ensure consumers have ready access to quality advice about financial products, including insurance.
Unfortunately, the old financial advice regime under the Financial Advisers Act 2008 ("FAA") contained no real obligations for insurance brokers, so we welcome the reforms announced by government in the Financial Services Legislation Amendment Bill ("FSLAB"). The FSLAB will apply common core duties to all advisers, including a duties to:
- put the client’s interests first,
- disclose certain information to the client, and
- maintain minimum standards of conduct and competence.
We say that consumers must know how their insurance broker is paid. Insurance is often sold on commission, and the commission or the broker's other fees are paid by the insurer, not the consumer. We say this puts the broker under a conflict of interest, and the nature and extent of that conflict should be fully and transparently disclosed to the consumer before the consumer agrees to enter into the insurance contracts.
A Code of Conduct with more specific set of standards is also being developed by an independent Code Working Group and signed off by the Minister of Commerce and Consumer Affairs before it becomes law.
ICNZ is working closely with MBIE officials, the Code Working Group members, and the Financial Markets Authority on this reform.
Insurance contracts law review
Review and reform to New Zealand’s insurance contracts law has been on the agenda for over 20 years. It is currently a patchwork of overlapping, inconsistent and unclear obligations. ICNZ supports consolidation of all contract law that is relevant to insurers into one piece of legislation, and a review of how well our law is meeting the needs of New Zealand’s insurers and insureds compared to overseas, where there have been significant developments.
In May 2017 the Minister of Commerce and Consumer Affairs announced that there would be a review of insurance contracts law once current legislative priorities have been worked through, likely in 2018.
The most pressing issue for insurers to have addressed in insurance contract law reform is to have section 9 Law Reform Act 1936 reviewed and updated. Section 9 creates a statutory charge in favour of a wronged or injured plaintiff over an insured defendant's liability insurance sum insured. Section 9's intent is good: to give people pursuing insolvent insureds direct access to insurance proceeds, rather than have those proceeds distributed equally amongst all the insolvent defendant's creditors (which would happen if section 9 did not exist).
While the policy intent is sound, the application is not. Section 9 is archaic and uncertain when applied in modern times to modern insurance policies. New Zealand is an outlier with an archaic statutory charge, and the United Kingdom and New South Wales have both recently reviewed and reformed their equivalent laws. We support review and reform in New Zealand.
Section 9 aside, ICNZ welcomes the opportunity for review.
Prudential supervision review
New Zealand's prudential regulation for insurers is set out in the Insurance (Prudential Supervision) Act 2010, administered by the Reserve Bank.
In 2016 New Zealand’s government invited the International Monetary Fund to assess New Zealand’s financial sector, including an assessment of how well New Zealand’s insurance regulatory regime measured up to international standards. The IMF assessment is called the FSAP.
IMF made recommendations which will be incorporated into a review of IPSA by the Reserve Bank.
ICNZ will be submitting to the Reserve Bank throughout the review.