This month we look to the information which has recently been provided about transitioning to the new Financial Advice regulatory regime, the outcome of an independent review of the Reserve Bank’s supervision of CBL Insurance Limited, an update on the Financial Market Authority’s planned activities and objectives for the year ahead, together with an update on changes to the Earthquake Commission Act 1993 and a recent Supreme Court decision confirming that a right to reinstatement under an insurance policy is not an assignable right. 

We also provide our general update on relevant legislation.


The Financial Market’s Authority will begin accepting transitional licence applications from 4 November 2019 for Financial Advice Provider Transitional Licences. 

Transitional licence applications will be open until the new regime commences in June 2020, at which point anyone providing financial advice to retail clients will need to operate under a Financial Advice Provider Transitional Licence.

The FMA has released an online tool to “Explore Your Options” designed for advisers who are still considering whether they want to operate under the new regime.  The tool asks a couple of questions and then provides advice on what steps to take and what costs are involved in the moving to the new regime. 

The FMA has also released the Financial Advice Provide Transitional Licence guide.  The guide provides a checklist of information necessary to complete the application, including:

  • whether you are correctly registered on the Financial Services Providers Register;
  • what services and products you will provide advice on;
  • how many financial advisers or nominated representatives you will engage to provide financial advice to retail clients;
  • details of authorised bodies on your licence, including the three points mentioned above; and
  • criminal convictions or regulatory actions.

No supporting documentation will be required at the time of application, however the FMA may require clarification of matters before deciding an application.  Anyone without a transitional licence after the commencement of the new regime cannot provide financial advice to retail clients until they obtain a full licence or unless they provide advice under another FAP’s transitional or full licence as a financial adviser or nominated representative or authorised body.

The Financial Advice Provide Transitional Licence guide contains a list of the questions asked on the application and a detailed explanation of what the FMA means in each instance. 

An application for a transitional licence costs $405 plus GST per authorised body named on the application. 

Please see our July issue for information regarding the standard conditions that the FMA has considered imposing upon some transitional licences.

Please contact us if you have any questions about the new regime or obtaining a transitional licence.


The overseas insurance and reinsurance provider CBL Insurance Limited (CBL) was placed into interim liquidation in liquidation on 12 November 2018.  This followed an interim liquidation after the discovery of a major understatement of CBL’s reserves and a serious breach of Reserve Bank (RBNZ) directions.  As a major regulatory event, the RBNZ commissioned an independent review of its supervision of CBL.  The review’s results were released on 3 July.  

The review, led by John Trowbridge and Mary Scholtens QC, assessed the RBNZ’s actions and the effectiveness of the broader regulatory framework.  The review makes several key recommendations in term of both insurance business supervision and regulatory matters.

In terms of supervising insurance business, the review recommends the RBNZ:

  • take a pre-emptive stance towards doubts and suspicions of lacking financial soundness;
  • when in doubt about a company’s financial soundness, act forcefully using all powers available to it;
  • strengthen governance obligations of insurers through increased scrutiny and accountability of boards, management, and appointed actuaries; and
  • allocate additional resources to the supervisory and policy teams consistent with the Bank’s objectives.

In terms of general regulation, the review recommends the RBNZ:

  • modify the solvency standard to operate as a graduated and flexible set of solvency measures and triggers with a prudential capital buffer and an escalating supervisory response as the buffer reduces; and
  • amend the Insurance (Prudential Supervision) Act 2010 to introduce, measures including, group supervision, outsourcing requirements, and wider prudential standards.


The Financial Markets Authority have released in tandem their Annual Corporate Plan (ACP) and Strategic Risk Outlook (SRO) for 2019/20.  Both publications demonstrate the FMA’s new sector-based approach to assessing risks and harm and identifying desired outcomes.  The ACP sets out FMA’s activities for 2019/20.  The SRO sets out the FMA’s medium-term view of the opportunities and significant risks to promoting fair, efficient, and transparent financial markets. 

The FMA’s new strategic priorities are:

  • governance, culture, systems, and controls;
  • credible deterrence of misconduct;
  • successful implementation of potential remit changes;
  • investor and customer decision-making; and
  • promoting trust and confidence in capital markets.

In terms of the sales, advice, and distribution sector, the FMA wants to achieve practices that protect and promote the interests of customers through a new advice regime, new advice requirements, consumer-centric sales and advice practices and remuneration structures, and credible regulatory deterred of misconduct on the perimeters. 

In terms of the insurance sector, the FMA wants banks and insurers to demonstrate how they serve customer needs through appropriate governance, systems, and controls for managing conduct risk, incentive schemes that promote good customer outcomes, appropriate prioritisation of remediation when things go wrong, and effective implementation of new conduct regulation.  The FMA is concerned that consumer access to general insurance products could change as insurers increasingly incorporate climate and geological risks into their decision-making.  There is also concern that the use of big data and AI, while improving the accuracy of risk pricing, could make it harder for some customers to access or afford insurance.  The FMA also points out that commissions paid to intermediaries and agents for life insurance contracts is very high in New Zealand as compared with other jurisdictions.

Please contact us if you have any questions about the FMA’s activities and objectives over the coming year.


Part 2 of the Earthquake Commission Amendment Act 2019 (Amendment Act) commenced on 1 July 2019, notably increasing the liability cap for natural disaster damage to residential property to $150,000 and removing cover for contents. 

EQC Chief Executive Sid Miller said this change brings EQC cover into line with increased house prices.  It is important to note that EQC cover of residential buildings still excludes damage caused by storms or flooding, where EQC only covers damage to land caused by those perils.  

The balance of the Amendment Act commenced on 19 February and included changing the time limit for claims from three months to two years and clarifying EQC’s authority to share information to speed up claim settlements on public interest and health and safety grounds.


The Supreme Court has upheld a decision of the Court of Appeal confirming that an entitlement to reinstatement under an insurance contract is not a right that can be assigned without the insurer’s consent. 

A right to elect to reinstate under an insurance policy is personal to the insured and cannot be assigned to a purchaser of the property where no such reinstatement has occurred.  The policy under consideration entitled the insured:

  • if they reinstated, to payment of the actual costs of repairing their property to its new condition; or
  • if they did not reinstate, to the lesser of the indemnity value of the loss or the estimated cost of restoring their property to its pre-loss condition.

The insured had not elected to reinstate, and instead sold the property to the purchasers, assigning them their rights under the insurance contract.  IAG succeeded in the High Court and the Court of Appeal under a long-standing decision of the Court of Appeal in Bryant v Primary Industries Co Ltd [1990] 2 NZLR 142 (CA).  That case held that a right to replacement benefits conditional on the insured incurring the cost of repair cannot be assigned where the insured party has not incurred that cost.  The majority in the Supreme Court explained the “indemnity” principle of insurance law that polices are construed in such a way as to avoid insurers paying more than indemnity value. 

Consequently, the purchasers were not entitled to claim the reinstatement benefit, and were left with a claim for indemnity value.  While the judgment indicates that rights to reinstatement are generally unassignable, the decision is limited to the facts before the Court.

Please contact us if you have any questions about the consequences of this case or reinstatement benefits generally.


Review of the Insurance (Prudential Supervision) Act 2010

The RBNZ has resumed work on the review of the Insurance (Prudential Supervision) Act 2010.  The review is anticipated to be lengthy and therefore a timeline is yet to be issued.

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. 

Privacy Bill

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.

Maritime Transport (Offshore Installations) Amendment Bill

The Maritime Transport (Offshore Installations) Amendment Bill (Bill), seeking to amend the Maritime Transport Act 1994 (Act), has reached the Select Committee stage.  Submissions to the Transport and Infrastructure Committee close on 14 August 2019. 

The Bill intends to 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. 

Residential Tenancies Amendment Bill (No. 2)

This Bill amends the Residential Tenancies Act.  The Bill has recently passed its third reading, and includes a provision that means that if a Tenant was liable for the damage or destruction to an insured property then the Landlord could claim the Landlord’s excess (payable to the insurer) or four weeks rent – whichever is lowest. 

Disclaimer:  The information contained in this newsletter is provided for general purposes only, and should not be construed as legal advice on any matter.

Elspeth Horner/Principal
P: 04 974 4702

Laura Tidey/ Associate 
P: 04 974 4701

Andrew Goble/Solicitor
P: 04 974 4704

Mitchell Souness/Law Clerk
P: 04 974 4707