COMPLIANCE NEWS – INSURERS
JULY ISSUE | 2019
This month we look at the new Tribunal instituted by the Canterbury Earthquakes Insurance Tribunal Act 2018, transitional licencing under the new financial advice regulation regime, and New Zealand banks’ commitment to removing sales-based incentives for frontline staff.
We also provide our general update on relevant legislation.
CANTERBURY EARTHQUAKES INSURANCE TRIBUNAL LAUNCHED
The Canterbury Earthquakes Insurance Tribunal Act 2018 commenced on 10 June 2019 and aims to provide fair, speedy, flexible, and cost-effective services for resolving disputes about insurance claims for physical loss or damage to residential buildings, property, and land arising from the Canterbury earthquakes.
The Act applies to disputes between policyholders and insurers and/or EQC about insurance claims for physical loss or damage to a residential building or property caused by one or more of the earthquakes between 4 September 2010 and 23 December 2011 or any aftershocks before the end of 2011. Claims can only be brought or transferred to the Tribunal by a policyholder. Neither insurers nor EQC can bring a claim.
The Tribunal can direct parties to mediation provided under the Act, however the parties may agree to use another mediation service. The Tribunal can decide the liability of any party to any other party and any remedies for that liability.
Proceedings of the Tribunal are judicial and inquisitorial in nature. It may of its own initiative seek and receive any evidence and conduct any investigations and inquiries it considers appropriate.
In relation to a claim the Tribunal can make any order that a court could make in accordance with the contract in dispute and the general law of New Zealand. Orders may include: general damages; costs; a requirement to do some act (and an amount payable for failure to do that act); conditions for payment of money; and/or conditions for liability.
Please contact us if you have any questions about how the Act may affect your business.
FINANCIAL ADVICE PROVIDER TRANSITIONAL PERIOD
Cabinet has agreed that the new financial advice regulation regime under the Financial Services Legislation Amendment Act 2019 (FSLAA)will commence in June 2020, the exact date to be determined in the next few months. From that date Financial Advice Providers who advise retail clients must be licenced by the Financial Markets Authority (FMA). Licencing will occur in two stages: transitional and full. Transitional licence holders will have two years from commencement of the new regime to obtain a full licence. Application for transitional licences are expected to open in the fourth quarter of 2019 and close at least six months later.
Persons who were authorised financial advisers or held QFE status immediately before 9 April 2019 do not have to renew their licences if they terminate after that date. Those licences will be treated as continuing until the Financial Advisers Act 2008 is repealed by the FSLAA.
The FMA has released a consultation paper about the imposition of standard conditions upon transitional licence holders. Submissions close at 5:00pm Friday 26 July 2019. The paper considers the imposition of two standard conditions:
- maintenance of adequate written records in relation to financial advice service; and
- having an internal process for resolving client complaints in relation to financial advice service.
The FMA are currently developing the transitional licencing application form and preparing a guide on how to apply.
Please contact us if you have any questions about the new regime or obtaining a transitional licence.
CABINET AGREES ON LICENCING FEES AND FMA LEVIES FOR NEW FINANCIAL ADVICE REGIME
On 17 June 2019 Cabinet agreed on the licencing fees and the FMA levies that will apply under the new financial advice regime. The Ministry of Business, Innovation, and Employment (MBIE) has also released a cost recovery impact statement containing its predicted effects the FSLAA will have on the industry.
The financial advice provider transitional licence application fee will be $405.00 plus GST. The additional fee for an authorised body named in the application is $38.75 plus GST.
The following fee structure has been determined for full licencing:
- $612.00 plus GST for a sole adviser or financial advice provider that only gives advice on their own account. Two hour threshold for additional hourly rate. The proposed fee was $575 plus GST;
- $767.00 plus GST for financial advice providers that engage multiple financial advisers but no nominated representatives. Three hour threshold for additional hourly rate. The proposed fee was $730 plus GST;
- $922.00 plus GST for financial advice providers that engage one or more nominated representatives. Four hour threshold for additional hourly rate. The proposed fee was $885 plus GST; and
- $155.00 plus GST additional fee for any authorised body named in an application.
The new regime will also change the annual FMA levies. The following structure will apply:
- $265.00 plus GST for a financial adviser;
- $225.00 plus GST for a financial advice provider (capped at $80,000 per annum);
- plus $179.00 plus GST per nominated representative engaged by the financial advice provider;
- plus $737.00 plus Gust if the financial adviser provider gives advice on its own account; and
- $460.00 plus GST for an authorised body.
The FMA will monitor applications throughout the transitional and full licencing periods to ensure that the charging structures are meeting their objectives.
REMOVAL OF SALES INCENTIVES FOR FRONTLINE BANK STAFF
The Bank Conduct and Culture report released in 2018 required banks to outline their plans to remove sales-based incentives for salespeople and their managers and revise sales incentives at all levels of management. Where banks did not commit to removing sales incentives, banks were expected to demonstrate the controls to be implemented to manage conflicts and mis-selling.
The FMA and Reserve Bank of New Zealand (RBNZ) have reported that all banks have now committed to remove sales incentives for frontline staff and their managers. Some banks plan to retain sales incentives for small groups of staff who services wholesale customers and a small number of retail customers. Most banks maintained financial metrics-based incentives for senior executives. The FMA and RBNZ will now monitor the bank’s progress against their commitments.
This comes amid the Life Insurer Conduct and Culture report that expects insurers to remove or substantially revise sales-based incentives for salespeople and all levels of management before the end of 2019.
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.
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 later in 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. Consultation on the Insurance Contract Law Options Paper closed on 28 June 2019.
The Privacy Bill (Bill) began its second reading on 18 June 2019. Minister of Justice Hon Andrew Little highlighted the key changes the Justice Committee (Committee) made in response to submissions.
Importantly, the Bill as introduced required agencies to report breaches that have caused harm or risk doing so. Submitters and the Committee felt this threshold was too low and could trivialise mandatory reporting. Agencies will not be required to notify the Privacy Commissioner and affected individuals of breaches where it is reasonable to believe the breach has caused or is likely to cause serious harm. The threshold increase will better align New Zealand with overseas standards.
The debate was interrupted and will continue soon. The Bill is currently fifth on the list of government orders.
Maritime Transport (Offshore Installations) Amendment Bill
The Maritime Transport (Offshore Installations) Amendment Bill (Bill) would amend the Maritime Transport Act 1994 (Act). The Bill intends strengthen the requirements of owners of offshore oil and gas installations to hold insurance for liabilities to the Crown and other third parties affected by oil spills. Claimants under sections 385B–D of the Act will be able to recover the insured amount from any person providing insurance or other financial security for such liabilities.
The Bill would ensure that marine protection rules made under the Act may provide for the types of liability and the amounts for which insurance or other financial security must be held. Rules may also set requirements for insurance of other financial security to cover the costs of complying with a marine oil spill contingency plan.
The Bill’s amendments are intended to be supported by amendments to the rules specifying the insurance requirements. These will include a scaled framework for ascertaining the amount of cover required based on modelling of a credible worst-case scenario event from that particular installation.
General insurers providing cover to owners of offshore oil and gas installations should be aware that in the future claimants might be able to come directly to them.
Disclaimer: The information contained in this newsletter is provided for general purposes only, and should not be construed as legal advice on any matter.
P: 04 974 4704
Mitchell Souness/Law Clerk
P: 04 974 4707