The final steps in the insurance company licensing regime have now taken effect.
Readers with a keen eye on Parliament will have seen that a bill implementing a number of technical amendments to the Insurance (Prudential Supervision) Act 2010 (the Act) became law on 3 September 2013. Although largely technical, these amendments strengthen the Reserve Bank's oversight responsibilities under the Act and give it greater powers to request financial information from insurers while also streamlining certain procedures and removing unnecessary compliance requirements.
More significantly perhaps, from 7 September 2013 all insurers carrying on business in New Zealand are now required to hold a full licence issued by the Reserve Bank. This represents one of the final chapters in the implementation of the new insurance supervision regime that began in earnest with the granting of provisional insurance licences from March 2012 onwards. Insurance companies are now required to comply with Reserve Bank-issued solvency standards that are designed to prevent systemic failures in the insurance sector.
From the consumer’s perspective, the new regime requires insurers to disclose clearly in insurance contracts their financial strength rating, the agency which issued the rating (at present only the ‘big three’ rating agencies have been approved by the Reserve Bank for this purpose) and the rating scale of which the insurer’s rating forms part. Overseas insurers operating in New Zealand are also required to clearly disclose whether New Zealand policyholders’ claims would rank below the claims of the insurance company's overseas policyholders in the event of financial distress. Insurers are also required to provide various financial and actuarial information to the Reserve Bank on a regular basis to enable the Reserve Bank to monitor, and if necessary, give directions to an insurer about their financial strength. Moreover, the Reserve Bank has been given wide investigative powers and authority to compel insurers to provide the Reserve Bank with whatever information it considers necessary to effectively supervise.
Although these developments have come to fruition with little fanfare, the full implementation of the final phases of the new supervision regime marks a significant achievement for the Reserve Bank and the insurance sector as a whole.