COMPLIANCE NEWS – INSURERS
AUGUST ISSUE | 2021
Reserve Bank consults on Interim Insurance Solvency Standard
The Reserve Bank of New Zealand has begun consultation on an interim solvency standards for insurers (the Interim Standard). The Interim Standard implements the upcoming changes to accounting rules created by IFRS 17 which is set to come into force 1 January 2023. The Interim Standard is expected to come into effect from early 2022.
The new solvency standard is intended to give policyholders comfort in knowing that an insurance company has enough funds to fulfil promises made to policy holders while also being consistent with the new accounting standards.
The draft Standard can be found here. Insurers are being encouraged by the Reserve Bank of New Zealand (RBNZ) to engage in consultation on the draft standards. RBNZ hosted a webinar on 5 August 2021 and consultation on the Draft Interim Standards close 1 October 2021. If you would like to make a submission, please get in touch.
Insurer’s ill prepared for conduct licensing
The Financial Markets Authority (FMA) has concluded their conduct review of general insurers (the Life Insurer Conduct and Culture review). The findings have been summarised in the new report – Insurance conduct and culture: Fire and general insurers update. The report concluded that some general insurers, including health insurers, are lacking in understanding of and commitment to good conduct and culture practice. The finding has the FMA concerned that many insurers are not equipped to comply with the new legislation which will require insurers to ensure good conduct and fair treatment of customers (as set out in the Financial Markets (Conduct of Institutions) Amendment Bill).
The review showed a number of inadequacies with some insurers, including the finding that some insurers have been over-charging customers, failing to withdraw poor value products, failing to give customers promised multi-policy discounts and more.
The FMA’s director for banking and insurance, Clare Bolingford, acknowledged in the report that insurers have a “poor understanding of, and commitment to, good conduct and culture practice”. Insurers will need to improve their systems and particularly ensure they have processes in place to supervise what brokers are doing on their behalf.
The Financial Markets (Conduct of Institutions) Amendment Bill is currently awaiting its second reading. We will continue to provide updates on the progress of this bill.
AIA admits to making false and misleading representations to its customers
One of New Zealand’s largest life insurers, AIA has been subject to proceedings filed by the FMA in the Auckland High Court. AIA admitted to making “false and misleading” representations to their life insurance customers after they were asked to provide information during the FMA/Reserve Bank of New Zealand Conduct and culture review of life insurers in 2018. AIA admitted to three causes of action including purported enhancement of policy benefits, charging premiums on policies which have been terminated or ceasing cover for customers who still hold policies and wrongly applying inflation adjustments to premiums.
The FMA has acknowledged the fact that AIA self-reported these breaches and has taken remediation efforts and has agreed to proceed with a penalty hearing before the High Court rather than incur the costs of a full trial. The FMA will seek declarations of the AIA’s misconduct as well as an order for AIA to pay a penalty of $100,000.
FMA’s head of enforcement, Karen Chang said that a “consumers’ trust in the integrity of their life insurance provider is paramount for the industry to be effective”. Ms Chang noted that this case demonstrates the importance for firms to ensure they have effective systems and controls in place to perform their core business and manage their customers’ policies correctly.
Australian Code of Practice
The Insurance Council of Australia has made significant changes to their General Insurance Code of Practice (the Code) which came into force from 1 July 2021. The voluntary Code sets out the standards for insurers to meet when providing services to their customers.
The new code makes a number of changes, one of the most significant being the inclusion of the family violence policy provisions. The code requires signatories to acknowledge that some customer’s vulnerabilities can give rise to unique needs. Signatories must have a publicly available policy about how they will support customers who are affected by family violence. Staff members will also be required to be trained to identify when a customer may be affected by family violence and have the training to know how to best support and engage with that customer, including referring the customer to professional support services.
One of the other major changes is the additional powers given to the monitoring body to enforce compliance with the Code. The monitoring body can now impose harsher sanctions for breaches of the Code, including imposing a penalty of up to $100,000 for serious breaches. The enforcement body will also have the power to order signatories to compensate any individual for any direct financial loss or damage suffered as result of the insurer’s non-compliance. Any significant or serious breaches of misconduct can be reported to the Australian Securities and Investment Commission.
Financial Markets (Conduct of Institutions) Amendment Bill
The Finance and Expenditure Select Committee reported on the
Financial Markets (Conduct of Institutions) Amendment Bill on 7 August.
The Bill now awaits its second reading.
Fair Trading Amendment Bill
The Fair Trading Amendment Bill is awaiting its third reading.
Insurance Contract Law Review
The exposure draft Bill for consultation is anticipated to be released mid-2021.
Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill
The Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill is currently with the Select Committee. The Committee stopped accepting submissions on 28 May 2021.
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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Laura Sookahet/Senior Associate
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Andrew Goble/Senior Solicitor
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