COMPLIANCE NEWS – INSURERS
FEBRUARY ISSUE | 2019
This month we look at the report released by the Financial Markets Authority and Reserve Bank of New Zealand from their review of conduct and culture in New Zealand life insurers, the update on the insurance industry from the Reserve Bank of New Zealand’s perspective, and proposed changes to financial advice provider fees and levies. We also provide our general update on relevant legislation.
THE FINANCIAL MARKETS AUTHORITY AND RESERVE BANK OF NEW ZEALAND REPORT ON CONDUCT AND CULTURE IN NEW ZEALAND LIFE INSURERS
The Financial Markets Authority (FMA) and Reserve Bank of New Zealand (RBNZ) have completed their joint review of conduct and culture in New Zealand life insurers. The FMA and RBNZ have released a report noting the findings from the review.
The review was based on the analysis of documents provided by life insurers, followed by onsite interviews with frontline staff, management, executives, and directors. The FMA and RBNZ also sought insight from insurance industry stakeholders and financial advisers.
The review found extensive weaknesses in life insurers’ systems and controls. The review also found weakness with governance and management conduct risks, and there is a lack of focus on good customer outcomes. The FMA and RBNZ believe there is a serious risk of further conduct issues arising. In their view, insurers need to act urgently and undertake major change to address these weaknesses as they leave the industry vulnerable to misconduct and escalation of issues.
Overall, the FMA and RBNZ believe that life insurers have been too complacent when it comes to considering conduct risk, too slow to make changes following previous FMA reviews, and not focused enough on developing a culture which balances the interests of shareholders with those of customers.
The FMA and RBNZ will be
providing specific findings to each individual life insurer which was reviewed,
together with their general observations.
By 30 June 2019, each participant insurer will need to:
- Develop an action plan to address the feedback and report progress to the FMA and RBNZ;
- Explain how they will meet the FMA and RBNZ’s expectations with respect to staff incentives and commissions for intermediaries;
- Prepare a detailed gap analysis against the final report (provided by the Australian Royal Commission) and all findings relevant to insurance, and the sales and advice process;
- Conduct a systematic review of the life insurer’s existing products and policy-holder portfolios in order to proactively identify any conduct, and culture risks and issues.
RBNZ will be following up with individual insurers in accordance with its risk-based approach to establish whether the weaknesses identified in conduct and culture governance and conduct risk management apply across other risk areas.
Please contact us if you require any assistance with preparing the information required by the FMA and RBNZ in accordance with the review.
RESERVE BANK OF NEW ZEALAND PROVIDES AN UPDATE FOR THE INSURANCE INDUSTRY
The Reserve Bank of New Zealand (RBNZ) has released an Insurance Industry Update (Update). The purpose of this update is to keep insurers informed of RBNZ’s current initiatives and provide clarification on licensing, supervision, compliance requirements, and related matters.
The Update states that the insurance sector as a whole is meeting its minimum capital requirements. However, capital strength has declined and a number of insurers are operating with small capital buffers. RBNZ advises that insurers must ensure they have sufficient capital to maintain solvency in all business conditions. RBNZ will be focussing more resources in 2019 towards supervising solvency.
RBNZ have also raised concerns regarding the number of errors some insurers continue to make when submitting their data returns to RBNZ. RBNZ have raised the following key concerns:
- Insurers must use the secure upload whenever required. Emailing data reports requires extra manual work for RBNZ;
- Insurers must ensure they select the correct options from the drop-down list. This reduces the risk of RBNZ chasing the insurer up for information already provided, yet filed under the wrong drop-down list;
- Insurers must ensure the date recorded on the cover page is correct. Incorrect dates can corrupt RBNZ’s data system due to loading errors against the incorrect date;
- Insurers must ensure they are reporting by the due date.
RBNZ is also in the early stages of scoping an industry wide thematic review. This thematic review is due to be undertaken during 2019. The thematic review will cover the appointed actuary regime including financial condition reporting. RBNZ acknowledge that its supervisory framework relies significantly on appointed actuaries. Therefore, it is important for RBNZ to review the impact and continuing suitability of the regime.
PROPOSED CHANGES TO FINANCIAL ADVICE PROVIDER FEES AND LEVIES
The Ministry of Business, Innovation and Employment (MBIE) has released a Discussion Paper seeking feedback on proposed financial advice provider licensing fees and changes to the Financial Markets Authority’s (FMA) levy.
The Financial Services Legislation Amendment Bill (Bill) requires that anyone giving financial advice to retail clients must be covered by a licence granted by the FMA. As part of the Bill, there will be two phases to licensing – transitional and full licensing.
The Discussion Paper proposes that the transitional licensing fee be $363 plus GST. An additional $39 plus GST must be paid for any authorised body named in an application. An authorised body is an entity named on a financial service provider’s licence which can provide the licensed service without needing its own licence.
The Discussion Paper proposes the following fee structure for full licensing:
- $575 plus GST for a financial advice provider that is a single adviser business or only gives advice on its own account. Under the current regime, a single adviser businesses does not have to pay any licensing fee;
- $730 plus GST for a financial advice provider which engages multiple financial advisers but not nominated representatives. Under the current regime, each adviser engaged was required to pay $996;
- $885 plus GST for financial advice providers which engage nominated representatives. Under the current regime, an insurer which engages internal employees to advise on its products is required to pay $4,249 plus GST to become a qualifying financial entity;
- An additional $155 plus GST must be paid for any authorised body named in an application.
A fee of $155 plus GST will be charged if a licence application (whether transitional or full licensing) takes longer than a specified threshold of time.
Submissions on the Discussion Paper close 22 February 2019 at 5pm. Please contact us if you would like us to prepare feedback on the proposed changes to financial advice provider licensing fees and FMA levies.
Review of the Insurance (Prudential Supervision) Act 2010
The RBNZ has suspended active work on the review of the Insurance (Prudential Supervision) Act 2010 in consideration of RBNZ’s review of resourcing and priorities. The suspension will be reviewed regularly. We will notify you when work on the review resumes.
Financial Services Legislation Amendment Bill
The Financial Services Legislation Amendment Bill (FSLA Bill) is still before the Committee of the Whole House. The FSLA Bill is an omnibus Bill which makes amendments to the Financial Markets Conduct Act 2013 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008. A number of regulations will need to be made to support the measures in the Bill. The intention is for the FSLA Bill to pass early 2019.
Insurance Contract Law Review
The Ministry of Business, Innovation and Employment is completing a review of New Zealand’s insurance contract law. The purpose of the review is to ensure insurance markets work well, and enable individuals and businesses to effectively protect themselves against risk. The Minister of Commerce and Consumer Affairs is currently reviewing the feedback it received following the release of an Issues Paper for consultation which close on 13 July 2018. We will update you as new information comes to hand.
Fair Insurance Code
The Insurance Council of New Zealand (ICNZ) is in the process of reviewing the Fair Insurance Code and the submissions received from the public. The ICNZ expects the new Fair Insurance Code will be introduced in 2019. We will update you as new information comes to hand.
Earthquake Commission Act 1993
The Earthquake Commission Amendment Bill (ECA Bill) is now on its Third Reading. The Committee of the Whole House has produced a report on the ECA Bill. The report recommends that the ECA Bill be passed with amendments made. The following amendments have been recommended:
- The new section 31A be re-drafted to give greater certainty that the Earthquake Commission can disclose information to prevent or lessen a serious threat.
- Amendments to clause 7 of Schedule 3 to allow the Earthquake Commission to accept notice of earthquake damage after the two-year limit set by the ECA Bill.
- Removing clause 13(1A) of Schedule 3 as it would create uncertainty on how the provision is applied.
- Amending the commencement date of Part 2 (removal of cover for contents and increasing the residential building monetary gap) to 1 July 2019.
Please contact us if you have any questions on the ECA Bill or how it may affect your business.
Canterbury Earthquakes Insurance Tribunal Bill
The Canterbury Earthquakes Insurance Tribunal Bill is currently before the Select Committee. This Bill intends to establish the Canterbury Earthquakes Insurance Tribunal (Tribunal). The Tribunal will provide speedy, flexible, and cost-effective services to help resolve insurance claims between policyholders and insurers, and insured persons and the Earthquake Commission. Claims must relate to damage to residential buildings, property, or land caused by the series of Canterbury earthquakes which occurred in 2010 and 2011. We will advise you as new information comes to hand.
The Privacy Bill is currently before the Select Committee. Parliament is currently reviewing the submissions received from the public. We will update you when new information comes to hand after the submissions have been reviewed.
Disclaimer: The information contained in this newsletter is provided for informational purposes only, and should not be construed as legal advice on any matter.