COMPLIANCE NEWS - INSURERS

ISSUE APRIL | 2022

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Bulletins

Reserve Bank seeks feedback on insurance enforcement and distress management
FAP Licencing – class 3 in July
Interim Insurance Solvency Standards refined by feedback
Financial Markets (Conduct of Financial Institutions) Amendment Bill
ACC Income Protection Scheme
ACC Income Protection Scheme
Progress Report

This month’s insurance newsletter discusses the Reserve Bank’s inquiry into insurance enforcement and distress management, the looming full licence application deadlines, the Reserve Bank’s feedback statement on the Insurance Solvency Standards, an update on the Financial Markets (Conduct of Financial Institutions) Amendment Bill (COFI) and the ACC Income Protection Scheme.

Reserve Bank seeks feedback on insurance enforcement and distress management

As part of the review of the Insurance (Prudential Supervision) Act 2010 (IPSA), the Reserve Bank is seeking feedback on the penalties and enforcement tools available when supervising insurers and also the Reserve Bank’s powers to manage distressed insurers.

IPSA currently imposes criminal penalties for non-compliance with regulation. The Reserve Bank is seeking consultation on imposing other forms of sanctions and penalties to allow a more proportional response to compliance issues.

Deputy Governor and General Manager for Financial Stability Christian Hawkesby says that “a well-designed enforcement framework should provide a range of credible responses to compliance problems so we can respond in a way that is proportional to the issue we’re addressing”.

The consultation reviews:

the Reserve Bank’s enforcement of regulatory breaches to give the Reserve Bank a more varied set of responses for regulatory breaches by insurers. The paper considers the possibility of supplementing criminal penalties with lighter penalties for less serious offences such as fines or written warnings;
expanding the Reserve Bank’s powers to facilitate a more proactive approach to supervision. This includes the power to carry out on-site inspections at the insurer’s premises including, where necessary without prior notice.
the option to introduce a breach reporting system to require insurers to monitor their own compliance and notify the Reserve Bank of any breaches which occur;
the Reserve Bank’s role in dealing with distressed insurers, including insolvency provisions and resolution powers.

The Reserve Bank has prepared a non-technical summary and full consultation paper which can be found on the Reserve Bank’s website here.

Please get in contact with our insurance team if you are interested in making a submission.

Submissions close 20 May 2022.

FAP Licencing – class 3 in July

The deadline for full licence applications is fast approaching. The Financial Markets Authority (FMA) has helpfully indicated the target dates for full licence applications to be submitted. The FMA advises applicants to adhere to these dates to ensure full licence applications are processed before transitional licences expire:

Class 1 and Class 2 licence applications: 30 September 2022
Class 3 licence applications: 30 June 2022

All transitional licences expire 16 March 2023. As there is a significant amount of work involved as part of the full licence application, we advise all insurers get in contact as early as possible to ensure full licence applications are able to be submitted prior to the target date advised by the FMA.

Interim Insurance Solvency Standards refined by feedback

The Reserve Bank has released a feedback statement on the consultation of the Draft Interim Solvency Standard. The feedback statement summarises the feedback received, the Reserve Bank’s responses and an overview of the impacts on capital measures. Some of the feedback considered in the feedback statement includes:

Dedicated health insurers would prefer to use short-term liability valuation methods, due to the complexity involved in applying long-term methods;
Issues raised with respect to the capital impacts of the operational risk change and its lack of risk-sensitivity;
An incorrect prescribed solvency assumption for health claims inflation and absent assumptions for long-term non-life business were noted;
More clarity on tax treatments, particularly in respect to tax benefits under solvency stresses and their subsequent treatment in the distressed wind-up capital charge.

The full Feedback Statement can be found on the Reserve Bank’s website here.

The Interim Solvency Standard was intended to come into force from 1 January 2022 for early adopters of IFRS 17. However, during the consultation stage the Reserve Bank became aware that this initial implementation date would not be feasible for insurers to implement the necessary systems and processes and meet capital requirements. The Reserve Bank also acknowledged that based on the feedback received and the work involved, more time was needed to address some of the more significant points raised in the consultation.

The Reserve Bank has advised the new date for the implementation of the Interim Solvency Standard is 1 January 2023. The final interim standard is expected to be published by 1 October 2022. We will continue to advise on this as and when more updates are released.

Financial Markets (Conduct of Financial Institutions) Amendment Bill

The Ministry of Business, Innovation and Employment (MBIE) released details on Cabinet’s decisions to amend the Financial Markets (Conduct of Financial Institutions) Amendment Bill (COFI) by a supplementary order paper.

As discussed in our earlier newsletters, the COFI Bill looks to introduce a conduct licencing regime for banks, insurers and non-bank deposit takers to ensure the fair treatment of consumers.

The amendments include the following changes to the Bill:

Narrowing of the scope of obligations imposed on financial institutions with regards to training, managing and supervising intermediaries;
Amending the Bill to ensure financial institutions consider the potential vulnerability of consumers in their fair conduct programmes;
Adaption of the Bill to appropriately capture the Lloyd’s insurance market.

The Bill is currently intended to be passed by mid-2022. We suspect the changes imposed by the supplementary order paper may be significant, particularly in terms of a financial institution’s oversight of intermediary conduct.

ACC Income Protection Scheme

The Government has recently proposed an income insurance scheme to protect workers made redundant, laid off or who have stopped working due to health conditions or a disability. The scheme is intended to ensure affected workers are eligible to receive 80 per cent of their usual salary while out of work for up to seven months. In some situations an option to extend support for up to 12 months for training and rehabilitation may be granted.

The proposed scheme intends to require employees and employers to fund the scheme by levies on wages and salaries, similar to that of ACC. It is intended that the Accident Compensation Corporation (ACC) will administer the scheme.

The scheme has been introduced in light of the job losses incurred as a result of the COVID-19 pandemic and the Canterbury earthquakes.

The Ministry of Business, Innovation & Employment are accepting submissions on the scheme. Submissions can be made on MBIE’s website here. Submissions close 26 April 2022.

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 2020. The Bill is currently at the second reading stage.

Insurance Contract Law Review

The Ministry of Business, Innovation and Employment (MBIE) released the draft Insurance Contracts Bill on 24 February 2022. MBIE is currently seeking feedback on the draft Bill. Submissions can be made on MBIE’s website. Submissions close 4 May 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 27^th of October. XRB is seeking feedback on the Standards. The exposure draft is expected to be released 1 July 2022.

ACC Income Protection Scheme

The Ministry of Business, Innovation & Employment are accepting submissions on the scheme. Submissions can be made on MBIE’s website here. Submissions close 26 April 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.