COMPLIANCE NEWS – INSURERS
JUNE ISSUE | 2020
This month we look at the FMA’s conduct expectations for insurers during COVID-19, health and safety at COVID-19 Alert Level 2, and the decision to boost the FMA’s funding with increased levies.
We also provide our general update on relevant legislation.
FMA SETS EXPECTATIONS FOR INSURERS DURING COVID-19
On 29 April 2020 the FMA’s Director of Banking and Insurance, Clare Bolingford, wrote to three industry bodies about the FMA’s expectations for insurers during COVID-19.
The letter to Tim Grafton (Insurance Council of New Zealand), Richard Kiplin (Financial Services Council of New Zealand), and Roger Styles (Health Funds Association of New Zealand), stated the FMA’s expectation that insurers remain cognisant of the challenges New Zealanders are facing, offer support and flexibility to policyholders, and do what is possible to maintain or reduce cost levels for consumers.
Insurers are encouraged to:
- clearly explain all offers of relief to customers and distributors. The FMA expect all offers and potential implications for customers to be articulated clearly.
- cearly communicate any COVID-19 policy exclusions that may impact cover and the use of policies. Customers should be treated fairly where changes are made to existing products and coverage should be clearly explained to customers who are due to renew.
- consider using processes to ensure claims are processed efficiently taking into account COVID-19 restrictions.
- ensure customer complaints processes are fit-for-purpose and complaints are managed promptly, fairly, genuinely, and consistently.
- have processes in place to underwrite and bind new insurance policies without overt reliance or dependence upon external parties where possible.
- provide customers with additional advanced warning where premium increases above CPI are being planned or enacted, and provide additional options for those facing affordability issues.
- provide sufficient training for advisers on new COVID-19 policy terms or changes to underwriting and claims processes, so they can support customers.
- ensure they and their distributers maintain acceptable advertising standards during COVID-19. For example, COVID-19 is not to be used as a customer acquisition tool.
The Director of Banking and Insurance also provided examples of proactive behaviour the FMA would encourage the rest of the sector to follow:
- insurers utilising additional print and digital medial to publicise relief offers and encouraging customers to make contact if they are in financial hardship.
- an insurer utilising call-centre capacity to make contact with elderly customers checking on their welfare and directing them to support agencies.
- resilience and vulnerability training for distributors so they can better support customers.
- reductions or refunds of premiums where lower than planned claims ratios exist.
- additional support to existing claimants.
This guidance is in addition to the general conduct guidance issued by FMA Chief Executive Rob Everett on 17 April.
Please contact us if you have any questions about the FMA’s approach to conduct regulation during COVID-19.
HEALTH AND SAFETY GUIDELINES FOR FINANCIAL SERVICES BUSINESSES OPERATING UNDER COVID-19 ALERT LEVEL 2
New Zealand moved to COVID-19 Alert Level 2 on 14 May. The Alert Level 2 tagline is “reduce”, as opposed to “restrict” and “lockdown” at levels 3 and 4 respectively. The move to Alert Level 2 has seen a significant increase in economic activity, but it is still not business as usual. The FMA and RBNZ have released further guidelines for financial services businesses operating under Alert Level 2.
While a move to Alert Level 1 in the near future looks increasingly likely, it is reasonable to assume New Zealand will remain at Alert Level 2 for some time yet. The restrictions that remain in place are aimed at keeping workers safe and guiding interactions with customers.
Workplaces may re-open where contract-tracing is possible but businesses are still encouraged to utilise alternative working arrangements where viable. Common-sense is expected of those returning to the workplace, as well as good judgement and hygiene practices, and minimal contact.
The following should be applied by any business that requires staff or customers to be physically present:
- mnimise the risk of transmission by maintaining physical distancing of at least one metre wherever possible.
- take practical hygiene steps to prevent spreading the virus (eg access to soap and water, hand sanitiser, staggered meal breaks, etc).
- hold centralised records of any staff working in close contact and set up effective contact-tracing measures (ie sign in and out procedures for all persons on your premises, recording interactions, etc).
- prevent staff from attending the workplace if they do not feel well or display flu-like symptoms.
- prevent staff from attending the workplace if they have been in close contact with anyone who displays respiratory symptoms, is being tested for COVID-19, or is a probable or confirmed case of COVID-19.
- advise staff who are considered at higher risk of becoming seriously ill with COVID-19 that they may attend the workplace but are advised to take additional precautions when leaving the home.
Any financial services business that is unsure what activities it can undertake is encouraged to contact the FMA or RBNZ.
Please contact us if you have any questions about operating your business during COVID-19.
FMA FUNDING BOOST PASSED ON TO INDUSTRY
In our February 2020 issue, we looked at MBIE’s consultation about a review of the FMA’s funding and levies in light of the new financial advice regime. The decision to increase the FMA’s funding to total appropriation of $60.8 million was made in this year’s budget. This represents the “enhanced case” in the related discussion paper.
The increase will be phased over three years in an attempt to minimise the burden on market participants. This has been adjusted from two years to reflect the hardship caused by COVID-19.
A table of the new levies can be found here. The entire increase is to be covered by additional levies, shifting the split between Crown funding and levies from 25/75 per cent to 15/85 per cent. Levy class 3, registered financial service providers that are licenced insurers, will move from contributing 7.36 per cent of total revenue to 9.05 per cent, meaning levies will roughly double in most cases.
Please contact us if you have any questions about the new funding levies.
Parliament resumed sitting on 28 April. Unsurprisingly, recent parliamentary activity has focussed on responding to COVID-19. This means that, as with last month, very little progress has been made on legislation affecting insurers.
The Privacy Bill (Bill) completed its second reading on 7 August 2019 and still awaits a committee of the whole house.
Financial Markets (Conduct of Institutions) Amendment Bill
The Financial Markets (Conduct of Institutions) Amendment Bill passed its first reading on 12 February 2020. The Finance and Expenditure Committee is considering the Bill. Submissions closed on 30 April 2020.
Fair Trading Amendment Bill
The Fair Trading Amendment Bill passed its first reading on 12 February 2020. The Economic Development, Science, and Innovation Committee is considering the Bill. Submissions closed on 26 April 2020.
Insurance (Prompt Settlement of Claims for Uninhabitable Residential Property) Bill
The Insurance (Prompt Settlement of Claims for Uninhabitable Residential Property) Bill (Bill) was introduced to Parliament in December 2019. The Bill still awaits its first reading.
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 Hon Kris Faafoi has explained he considers the review a priority. There is no timeline yet.
Review of the Insurance (Prudential Supervision) Act 2010
The Reserve Bank of New Zealand has paused work on the review of the Insurance (Prudential Supervision) Act 2010 in light of COVID-19.
Disclaimer: The information contained in this newsletter is provided for general purposes only, and should not be construed as legal advice on any matter.
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Mitchell Souness/Law Clerk
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Patrick Gerard/Law Clerk
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