Regulatory developments affecting the insurance sector

Following our regulatory update in our October 2018 edition of Cover to Cover, we provide a brief update on the latest regulatory developments affecting the insurance sector.

Financial Services Legislation Amendment Bill (FSLAB)

The FSLAB remains before the Committee of the Whole House for consideration and is expected to be progressed during the first quarter of 2019. However, it is possible that the passing of the legislation may be delayed if the Government wishes to use the FSLAB as one of the vehicles to address any of the regulatory gaps identified by the FMA and RBNZ in their reviews of bank and life insurance conduct and culture, or any of the recommendations of the Australian Royal Commission that the Government considers merit adoption in New Zealand.

On 13 December 2018, a discussion paper was released on the proposed financial advice provider transitional and full licensing fees and changes to the FMA levy that will apply in the new financial advice regime. To the extent an insurer provides regulated financial advice to retail clients, it will be required to be licensed as a financial advice provider.

The discussion paper proposes a flat transitional licence application fee, with additional fees charged for each authorised body included in a licence application and any later applications to vary licence conditions or add (or remove) an authorised body. The application fee for a full licence will depend on the size of the adviser business, the amount of authorised bodies named in the application and whether the business engages nominated representatives and/or financial advisers to provide financial advice services. A full licence applicant may also incur an additional hourly fee where the licence application is complex.

The FMA levy proposed is a base levy for each financial advice provider with additional amounts applicable where the financial advice provider gives advice on its own account or where it has nominated representatives. Financial advisers will also be required to pay the FMA levy separate from the financial advice provider.

Submissions on the discussion paper closed on 22 February 2019.

Amendments to the Fire and Emergency New Zealand Act 2017

On 7 November 2018, the Fire and Emergency New Zealand (Levy) Amendment Bill passed its first reading. The commencement date of the proposed changes to the levy system is likely to be brought back by one year, to 1 July 2020, with a backstop date of 1 July 2021. The bill is now before the Governance and Administration Committee with the report due back on 1 April 2019.

Audit requirements for insurer data returns

On 24 October 2018, RBNZ released their decisions after considering submissions on the consultation paper (October 2017) on audit requirements for insurer data returns. RBNZ has decided to defer the introduction of the audit requirement for the insurer return.

Updated Solvency Standards for Life and Non-life Insurance Business

The Solvency Standards for Life and Non-life Insurance Business were amended in 23 November 2018 to:

  1. include changes as a result of the new lease accounting standard NZ IFRS 16, including an additional change to the treatment of leases of intangible assets, with effect to reporting periods that begin on or after 1 January 2019;
  2. consolidate the non-life catastrophe risk charge loss return period within the Solvency Standard for Non-life Business 2014; and
  3. include the requirement that a licensed insurer engage an auditor to undertake a “reasonable assurance level audit” of the annual solvency return.

Review of insurance contract law and the Insurance (Prudential Supervision) Act 2010

At the date of this article, there are no new developments that we can report on with regard to the RBNZ’s review of the Insurance (Prudential Supervision) Act 2010 (IPSA), or the review of insurance contract law being undertaken by the Ministry of Business Innovation and Employment. As noted in Issue 15, the RBNZ suspended active work on the IPSA review following a review of resourcing and priorities (although the deferment is to be regularly reviewed by the RBNZ).

Further, the progress of the insurance contract law review could now slow down, in order to take into account the findings of the FMA and RBNZ as part of their recent reviews of bank and life insurance conduct and culture.

The Government announced that it would fast track legislation to address the regulatory gaps identified by the regulators during these reviews. It also announced that it would look closely at the recommendations of the Hayne Commission in its final report, and whether any of those recommendations should also be adopted in New Zealand.

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