ISSUE FEBRUARY | 2022

Last year was a significant year for insurers who have had to navigate a raft changes to compliance obligations, particularly with the new financial advice regime bought in by the Financial Services Legislation Amendment Act 2019.

This month we provide a summary of the legislative changes affecting insurers in the past year and what further change is on the horizon for this year.

The Financial Services Legislation Amendment Act 2019

Perhaps the most significant change to the insurance sector last year was the new financial advice regime introduced by the Financial Services Legislation Amendment Act 2019.  The new regime came into force on 15 March 2021. 

The regime introduced many changes including capturing insurers as financial service providers.  Insurers who are deemed to be providing financial advice to clients are now required to hold a financial advice licence and comply with the relevant obligations contained in the Financial Markets Conduct Act 2013.

By now, all financial advice providers must hold transitional licences to continue to provide financial advice services under the new regime. Transitional licence holders will need to ensure they hold a full licence within 2 years to continue to provide regulated financial advice to retail customers.

The Financial Markets Authority (FMA) has advised that all transitional financial advice providers should apply for their Class 1 or Class 2 full licences by 30 September 2022.  For those applying for a Class 3 full licence (most insurers), the advised date for submission of the full licence application is 30 June 2022. 

Insurance Solvency Standard and IFRS 17

The Interim Insurance Solvency Standard was intended to come into force 1 January 2022, in time for use by early adopters of IFRS 17.  The Reserve Bank made the decision to delay implementing the new Solvency Standard after recognising that most insurers were ill-prepared to comply with the new Standard by January 2022 and there did not appear to be any insurers intending to adopt IFRS 17 early.  

The Solvency Standard will now be implemented 1 January 2023 to align with the date which all insurers must adopt IFRS 17.

The Reserve Bank anticipates that the final Interim Standard will be published by 1 October 2022.  We note that this gives insurers little time to ensure they meet the requirements of the Interim Solvency Standard before the Christmas Break in time for 1 January 2023.  We will continue to provide updates on the Standard as and when information is released by the Reserve Bank.

Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill

The Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill received royal assent late last year. 

The Bill amends the Financial Markets Conduct Act 2013, the Financial Reporting Act 2013, and the Public Audit Act 2001 and will require all “climate reporting entities” to make mandatory climate-related disclosures in line with the standard issued by the XRB. 

All licensed insurers with greater than $1 billion in total assets under management or annual premium income greater than $250 million are considered a “climate reporting entity” and will be required to make disclosures under these changes.

The changes have been implemented as part of New Zealand’s goal of achieving net-zero carbon emissions by 2050.  The final standard is expected to be released in December 2022 with mandatory reporting expected to come into force for reporting periods beginning 1 January 2023.

Financial Markets (Conduct of Institutions) Amendment Bill

The Financial Markets (Conduct of Institutions) Amendment Bill (COFI) was introduced in December 2019 following the FMA and the Reserve Bank’s review into the conduct and culture of banks and life insurers. 

At this stage, the COFI Bill will require certain financial institutions (including insurers) to:

  • be licenced in their conduct towards consumers.  The licencing regime will be enforced by the FMA;
  • establish, implement and maintain effective fair conduct programmes within their business;
  • comply with established internal fair conduct programmes;
  • abide with other regulations which regulate sales incentives for financial institutions and intermediaries involved in the chain of distribution.

The Bill is currently awaiting its second reading.  We will continue to provide updates on the Bill as they become available.

Insurance Contract Law Review

In 2019 the Government launched a review of insurance contract law.  The review was bought about after recognition that the current law is outdated and many insurance contracts are too complex and difficult to follow for every day consumers.  The Government has agreed to reform insurance contract law, including:

  • placing an emphasis on the responsibility on insurers to ask consumers the right questions, rather than relying on the consumer to know what to tell the insurer;
  • require insurance policies to be easily understood by consumers;
  • strengthening protections for consumers against unfair terms in insurance contracts;
  • extend the Financial Markets Authority’s powers to allow them to monitor and enforce compliance with new requirements.

The Ministry of Business, Innovation and Employment (MBIE) has advised that there will be a release of an exposure draft Bill for consultation early this year.  We will provide updates on the insurance contract law review in this newsletter as more information becomes available.

PROGRESS REPORT

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.
 
Insurance Contract Law Review

The exposure draft Bill for consultation is expected to be released early 2022.

Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill

The Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill received royal assent on the 27th of October.  The final standard is expected to be released in December 2022.
 
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
E:  elspeth.horner@mhlaw.co.nz
P:  04 974 4702

Laura Sookahet/Senior Associate
E:  laura.sookahet@mhlaw.co.nz
P:  04 974 4701

Andrew Goble/Senior Solicitor
E:  andrew.goble@mhlaw.co.nz
P:  04 974 4704

Mitchell Souness/Solicitor
E:  mitchell.souness@mhlaw.co.nz
P:  04 974 4706

Patrick Gerard/Solicitor
E:  patrick.gerard@mhlaw.co.nz
P:  04 974 4707

Stacey Craig/Solicitor
E:  stacey.craig@mhlaw.co.nz
P:  04 974 4700