Changes ahead: Insurance (Prudential Supervision) Act under review
The Reserve Bank announced today a major step in the review of the Insurance (Prudential Supervision) Act 2010 (IPSA). The aim of the review is to assess the performance of IPSA, in light of its purposes, to ensure that IPSA provides for a cost effective supervisory regime that promotes the soundness and efficiency of the insurance sector. The Reserve Bank today published an Issues Paper for public consultation as part of the review. The Issues Paper identifies a wide range of issues which could potentially be addressed in the review of IPSA. The main issues arise in the following areas:
- Entities required to be licensed
- Overseas insurers
- Statutory funds and enhanced protection of life insurance policy holders
- Role of key officers and key control functions
- Enforcement regimes
- Distress management
- Solvency requirements
- Supervisory processes – regulatory approvals
- General disclosure and financial strength rating requirements
- Appropriate regulatory mechanisms
Who needs to read it? Why?
The Issues Paper suggests wide ranging reforms to the insurance industry in New Zealand. All licensed insurers and insurance related businesses should read the Issues Paper to consider whether the right issues for review have been identified. Industry and stakeholder responses to the Issues Paper will assist the Reserve Bank’s decision on the issues to be taken forward to the next phase of the review process.
What does it cover?
The Issues Paper is structured into the following key areas:
- The rationale for review: It has been approximately six and a half years since IPSA was enacted. The Reserve Bank considers that now is the right time to see if IPSA is achieving its initial aims. Drawing on the experience of the insurance sector, the Reserve Bank’s intention is to enhance the efficient and effective operation of the insurance sector.
- The terms of reference of the review: The terms of reference for the review of IPSA, as previously released in April 2016, are drafted broadly. This is deliberately so, to enable the review of IPSA to be comprehensive.
- Issues identified: The Reserve Bank has identified a wide range of potential issues in the areas referred to above. The Reserve Bank considers reforms to the regime in these areas are desirable to achieve IPSA’s objectives more efficiently, and also to reduce compliance costs for both the industry and the Reserve Bank. The Reserve Bank has also responded to stakeholder concerns and included issues identified by the industry.
The Issues Paper is deliberately drafted broadly and covers much of the regulatory regime for insurance in New Zealand. The review is an important opportunity for the insurance industry to address concerns that have arisen in the initial years of IPSA’s operation. Industry participants should carefully consider what are the most relevant issues to submit on, to be included as part of the review of IPSA.
The Issues Paper is the first step in the review of IPSA. Submissions on the Issues Paper close on 30 June 2017. The intention is then for a series of consultation papers on specific topics to be published in 2017/2018, with a final options paper published in 2018. The legislative process is expected to start with an exposure draft toward the end of 2018 or later.
If you have any questions in relation to Issues Paper or are considering how the review of IPSA affects your business, please contact one of our experts.