Industry Regulation

Ture Ahumahi

Industry Regulation

Ture Ahumahi


Insurers and insurance in New Zealand are comprehensively regulated through a twin peaks model — a form of regulation that separates prudential and conduct regulation, assigning responsibility for them to separate entities.

Regulations affecting insurance in New Zealand include

  • licensing and prudential supervision by the Reserve Bank (the first peak)
  • conduct supervision by the Financial Markets Authority (FMA, the second peak)
  • registration on the Financial Service Providers Register and consumer dispute resolution through the independent, external disputes resolution schemes the Insurance and Financial Services Ombudsman Scheme and Financial Services Complaints Limited
  • state-owned insurers, Accident Compensation Corporation (ACC) and Toka Tū Ake Earthquake Commission (EQC), operating in the personal injury and natural disaster insurance markets respectively
  • significant taxes and levies adding to the cost of insurance including GST, EQCover and Fire and Emergency New Zealand levies
  • various pieces of insurance contract and consumer protection legislation.

Prudential regulation

Prudential regulation ensures that insurers can afford to pay claims. The Reserve Bank governs prudential regulation in New Zealand. Under the Insurance (Prudential Supervision) Act 2010 they have the power to

  • license insurers conducting business in New Zealand
  • require insurers to meet certain conditions in obtaining or holding a licence
  • collect information from insurers to supervise their business and investigate when necessary
  • set solvency standards that dictate what an insurer can do with its capital
  • obtain a financial strength rating from a rating agency and disclose it to policyholders
  • maintain fit and proper policies and risk management programs, and
  • intervene in an insurer’s business if the insurer becomes in distress. 

One unique aspect of New Zealand’s prudential regulatory regime is that the Reserve Bank applies an extremely high catastrophe risk charge to New Zealand licensed insurers. Most insurers globally have to hold sufficient capital reserves or reinsurance to cover their liabilities for a 1-in-200 or -250 year catastrophe event. New Zealand insurers have to hold sufficient capital reserves or reinsurance to cover their liabilities for a 1-in-1000 year catastrophe event. 

This means insurers cannot use their capital as freely in New Zealand as those overseas can. This prevents domestic insurers from investing as much capital in the market —which can yield higher returns on investment and lower the cost of premiums charged.

Conduct regulation

Conduct regulation is about treating customers fairly. It aims to promote trust and confidence in the insurance sector.

Regulation does this by ensuring insurers have good culture and behaviours, leading to good outcomes for insurance customers.

Insurer conduct

The government has strict rules all insurance companies must follow that dictate how they treat their customer. Insurers must

  • deal with their customers fairly
  • not act in a way that could mislead or deceive customers about the nature, characteristics, suitability, or quantity of insurance
  • not make false, misleading, or unsubstantiated representations about insurance
  • provide insurance that is fit for purpose.

The FMA monitors and regulates insurer conduct in New Zealand.

Please note that the financial institutions (including insurers) conduct regime is currently undergoing a process of reform.

Broker conduct

Many people buy insurance through an insurance broker. New Zealand regulation sets professional standards for all financial advisers, including insurance brokers, under the new financial advice regime under the Financial Markets Conduct Act 2013 Financial Advisers Act 2008, which is enforced policed by the Financial Markets Authority.

The new financial regime increases will increase professional standards for all financial advisers, requiring advisers to put clients’ interests first and adhere to certain conduct and competency standards (to be set out in a code of conduct). The new financial advice regime, including the code, came into force on 15 March 2021.

Industry self-regulation

In addition to government regulation, ICNZ has certain conduct expectations of its members. The Fair Insurance Code sets industry best practice standards for all members.

Other regulations

There are a range of other legislative provisions which need careful consideration by an insurer in New Zealand, including

  • tax and accounting legislation
  • legislation governing interactions with customers and staff
  • legislation covering levy collection and public insurance schemes.

This is not an exhaustive list and insurers should seek appropriate advice in order to determine their full compliance obligations.

Tax and accounting

As with all individuals and corporate entities in New Zealand, insurers are affected by the

  • Income Tax Act
  • Tax Administration Act 1994
  • Taxation Review Authorities Act 1994
  • Goods and Services Tax Act 1985.

In addition, brokers are required to adhere to the Insurance Intermediaries Act 1994, which governs how they handle and account for premiums and other monies under their care.

Staff and customer rights

Insurers deal with people every day. In every dealing, there are pieces of legislation governing how those people are to be treated and how insurers as trading entities may or may not behave, including the

  • Fair Trading Act 1986
  • Consumer Guarantees Act 1993
  • Human Rights Act 1993
  • Privacy Act 2020.

Insurers must also belong to an approved disputes resolution scheme under the Financial Service Providers (Registration and Dispute Resolution) Act 2008.

Levy collection and public insurance schemes

There are currently 3 pieces of legislation in New Zealand that impose levy collection requirements on insurers and employers. In all cases, these levies are collected to fund services and public insurance schemes that manage public safety risks.

  • Fire and Emergency New Zealand Act 2017
  • Earthquake Commission Act 1993
  • Accident Compensation Act 2001

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